from AFRGreenbushes cuts a reminder that lithium is not iron ore
The spectre of production cuts at the Greenbushes lithium mine highlights the cultural shift coming for Australia’s mining sector if domestic processing and manufacturing of critical minerals becomes more common.
Mines with the lowest production costs have been expected to ram home their advantage when commodity prices slump. But the Greenbushes owners flagged on Monday they were more likely to curtail supply, even though they could make profit margins approaching 100 per cent at current lithium prices.
To illustrate the cultural change under way here, let’s reflect on the iron ore price crash that rocked the nation a decade ago.
Former Rio Tinto boss Sam Walsh proudly spoke in 2014 of his plan to keep his foot on the supply accelerator throughout the iron ore downturn.
“Regardless of what the price is, we will be the last one standing,” he said at the time.
Rio was the world’s lowest-cost iron ore producer back then, and Walsh liked the idea of lowering his unit costs by pushing even more supply into a weak market. BHP held a similar view.
Amid complaints from smaller miners that BHP and Rio were using their market power to grind junior miners out of existence, the big two insisted they were being financially rational and growing profits by expanding volumes, even if it meant lower iron ore prices.
“If that volume doesn’t come from our business, it is going to come from other businesses and other countries around the world,” said Jimmy Wilson, BHP’s iron ore boss of the time.
Lithium in 2024 is different to iron ore in 2014 for a couple of reasons.
The first lies in industry structure – the iron ore miners had no ownership of the blast furnaces that turned their ore into steel. The moment it left the Pilbara on a ship, it wasn’t their problem.
But the Greenbushes partners own the facilities that turn spodumene concentrate into lithium hydroxide; they will be left holding the baby if supply is excessive.
Those lithium hydroxide plants at Kwinana and Kemerton have ramped up slower than expected; they were supposed to be chewing through more Greenbushes ore by now.
A second difference between iron ore and lithium lies in the shelf life of the products.
So long as you have a big shed to stop it blowing away, iron ore can be stockpiled indefinitely in its raw form.
But the lithium hydroxide made by the Greenbushes owners at Kemerton and Kwinana has a comparatively short shelf life; it starts to degrade after six months.
So stockpiling lithium hydroxide at a time of weaker-than-expected electric vehicle demand isn’t really a smart thing to do.
The Greenbushes partners could keep mining and stockpile their excess lithium in the raw spodumene form. In fact, they’re already doing that.
But they are rapidly running out of room for stockpiling.
The Greenbushes partners could also sell their excess spodumene on the spot market, but the customers for that spodumene would have the same lithium hydroxide shelf-life challenges.
With the electric vehicle era barely getting started, the Greenbushes owners clearly think patience is a virtue, and the excess lithium is better kept in the ground for now.
It’s worth noting that not all Australian lithium miners have the vertical integration that the Greenbushes owners have. Mineral Resources would probably make the opposite decision at the Mt Marion mine, which is not paired to a lithium hydroxide factory.
But the point is that vertical integration is supposedly where this industry is headed.
If the Albanese government gets its wish, then Australia’s mining industry will focus less on selling the raw ores of yore and instead export critical minerals chemicals, cathode precursor materials or even complete batteries.
Customers for these new products want precision levels of chemical purity for their battery ingredients, putting a premium on fresh, proximate supply.
That’s part of the reason Pilbara Minerals and the company previously known as Allkem built their lithium hydroxide factories in South Korea and Japan respectively; their customers are down the road and can get their lithium hydroxide fresh out of the proverbial oven.
A future in battery chemicals will likely require a greater focus on the match between mine supply and refinery supply, and that means Australian miners will probably need to be more responsive to fluctuations in demand, even when they are the lowest-cost producer.
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