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15/08/24

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Post #: 75224873
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Originally posted by PatienceToWin: ↑

China's expansion problems
Shunyu Yao, an S&P Global Commodity Insights analyst, said in an email interview that China's costs are currently "well managed, but as their endowments are not that good, their potential expansion is not that competitive."
An analysis of S&P Global Market Intelligence data shows that the cash operating costs in China and Zimbabwe, which is rapidly becoming a large supplier of spodumene to the former, remain higher than in Australia.
Excluding Yichun, a city in China that mainly produces low-grade, low-margin lithium concentrate products from which more profitable chemical products can be produced, the country's major domestic production of concentrate is from the plateau area of Sichuan, where miners usually have a maintenance period of three to four months in the winter season, Yao said. The limited actual production time "brings challenges to expanding/developing lithium resources in China," the analyst noted.
Additionally, most salt lakes in Qinghai province have a high magnesium-to-lithium ratio that made production costly in earlier years. But now, these brines are managed within a competitive range thanks to recent technological innovations, Yao said.
However, "the technical route that they are using, typically utilizing 'old brine' (processed brine after extracting potassium products) could lead [to] a longer expansion period," Yao said.
China's lithium raw material supply is expected to more than double to nearly 319,000 metric tons of lithium carbonate equivalent (LCE) in 2028 from around 153,000 metric tons in 2023, according to Commodity Insights estimates. But even with this growth, China's domestic lithium raw material supply can only meet 36% of demand in the plug-in electric vehicle sector in 2028, Yu said.
Brinsden told Commodity Insights that this vulnerability in Chinese supply, along with the extraordinary growth in battery supply chains in China, would underpin a price rally before 2028.
Commodity Insights sees an 8,000-metric-ton deficit in lithium chemicals emerging in 2028, according to a July 25 note.
Addressing the Kalgoorlie forum, Brinsden cited Bloomberg NEF estiView attachment 6388356 mates that lithium-iron-phosphate cell sale prices in China have halved in the past 12 months to about $50/kWh.
"The outcome is the addressable market in the lithium-ion battery world is absolutely ballooning because the cells are getting so much cheaper and [growing] so much faster than anyone imagined," Brinsden told delegates.
Silver linings for local lithium
While the production of lepidolite, another lithium ore, in China costs more due to lower grades than what is found in Western Australia, this "natural disadvantage" is partially offset by the significantly lower shipping, transport, labor and power costs that come from operating in China, Canaccord mining analyst Reg Spencer told Commodity Insights.
China's cost issues among both its domestic lepidolite and Zimbabwean concentrate supply can also be fixed in time, Spencer said, and the economics could be aided by integrated battery supply chains.
"If a Chinese lithium converter owns the mine, then they don't have to worry about the mine making money because of the margins they receive when they convert it into lithium chemicals," Spencer said.
"If you're an integrated Chinese player, your cost of production is going to be a lot lower than what it would otherwise be if you were buying concentrate from an Australian exporter. It's all about compressing margins along the supply chain."
These new sources of supply, along with some evidence of slowing demand, mean "what we originally thought might have been deficit markets which would be enough to support periods of higher pricing are now no longer the case," Spencer said.
Thus more "balanced conditions and lower pricing" can be expected out to 2028, when Canaccord sees the current surpluses flipping to a "small deficit," the analyst said.
Author
Anthony Barich
Theme
Metals

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2028 !
Ouch
LTM Price at posting: $3.83 Sentiment: Buy Disclosure: Held
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