....unlike iron ore, where when Vale had the prolonged downtime, supply cuts helped shore up the iron ore price. This isn't going to happen to lithium
WHY?
No one lithium company can cut production unilaterally that can affect global supply enough to cause lithium price to rise. And even less materially so as we progress into 2025 and beyond when more lithium explorers get into production.
So if a lithium producer decides or elects to cut production because it can't produce at a profit, there would many other smaller lithium mines producing out of emerging economies that would be prepared to do so and take its place....the Chinese can provide them an agreed price to cover their variable cost to sustain them on a cashflow basis. And the surviving companies would find ways to reduce costs and raise production to generate positive cashflows.
We have a problem in Australia because our cost base is higher relative to those emerging market players. And we don't have a direct path to the Chinese market, if we elect not to do so and/or accept their pricing.
The big boys- ALB, SQM, PLS, Arcadium will play the volume game, they can possibly make some money when prices recover but it won't be anywhere near what they previously generated, and I'd dare say those high profits before would probably never to be revisited. And those prior valuations too would probably never to be revisited.
Not even when Western auto makers get their act on EVs in the years ahead, because by then (3-5 years), Chinese lithium would also vie to compete with Western lithium as China reaches close to 90% EV penetration. And there would be lithium players in every continent across the world supplying their respective continent. Australian lithium players would have to compete against continent players to get their share with shipping costs standing against them.
On that basis, I conclude that Aussie lithium producers/players are now not great long term investments.
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Greenbushes is also expanding - CGP3 is scheduled to commission by mid-25, though I expect it to be late 2025.
Forget #Lithium supply cuts. GB is churning out SC6. People hate to admit it, but sh!t tons of African Lithium is flowing into the supply chain, but it's there.
IMO the next hurdle for oversupply to end will be CGP3 - about 500ktpa(conservative) of supply for the market to digest.
