Labor may speed up tax credit as lithium miners buckle

The Albanese government could bring forward the $17.6 billion critical minerals production tax credit after New York-listed Albemarle decided to slash nearly 40 per cent of its workforce and close half of its lithium processing capacity in Western Australia.

The world’s largest lithium producer will shed 300 jobs as part of a radical downsizing in WA in the latest setback for Australia’s struggling critical minerals sector.

Albemarle CEO Kent Masters visits the Kemerton lithium hydroxide plant in 2022. Tony McDonough

Lithium is in a bear market as a result of softer-than-expected electric vehicle demand meeting an oversupply of the raw material, as explorers chased historically prices by bringing new mines online.

Its woes are exceeded by the pain in the nickel industry, where a glut fuelled by low-cost Indonesian output has caused about 7000 job losses in WA since last year. Even Fortescue will axe 700 jobs this month as its green hydrogen dream takes longer to be realised.

The cuts come barely 14 months after Albemarle vowed to spend billions on building a third and fourth processing unit – known as trains – at Kemerton to accompany trains 1 and 2 built last year. The Kemerton hub will now feature just one processing unit, which until now has failed to reach nameplate capacity.

Resources Minister Madeleine King said on Thursday that she was assessing bringing forward the critical minerals production tax incentive announced in the federal budget in May, which is slated to begin in 2027 and is valued at $17.6 billion over 14 years.

“It would be more helpful to more operations, and we’re going to look into bringing it forward,” Ms King told ABC Radio. “But I can’t make any commitments in regard to that at the moment.”

She again called on federal Opposition Leader Peter Dutton to support the tax, which is also opposed by the Minerals Council.

“Current conditions in lithium markets highlight the importance of policy support for Australia’s critical minerals sector to help address distortions in global markets,” she said.

‘Nothing to do with policies’

Ms King insisted that there was nothing the government could do to head off Albemarle’s decision which bodes poorly for the fortunes of local lithium producers.

A spokesman for Albemarle in Australia agreed, explaining that it slashed the plant’s scope because of market conditions and the commercial reality that lithium prices would stay lower for longer.

“This has nothing to do with state and federal government policies,” the spokesman said.

Unit 1 would benefit from the critical minerals production tax incentive when it comes into effect, he added.

“It will also assist the company’s decision-making later in the decade when, subject to sustained price improvement, we look to resume operations at train 2.”

Ms King was not forewarned of Albemarle’s plans to shrink its workforce nor to mothball half the huge lithium refinery, located 200 kilometres from Perth.

On Wednesday night, Albemarle told investors it would immediately stop constructing train 3, and place the second unit into care and maintenance.

Albemarle has never disclosed the final cost of trains 1 and 2 but Mineral Resources boss Chris Ellison, who also oversees a vast lithium operation, previously volunteered that it was “well north” of $US1.5 billion ($2.25 billion).

“I can’t say I saw this particular announcement with any advanced warning, unlike what happened with Nickel West,” Ms King told ABC local radio, referring to BHP suspending nickel mining and refining operations last month until at least 2027.

“A year ago, when I met with Albemarle, we were talking about another billion dollars going into those third and fourth units.”

At the peak of its ambitions, Albemarle’s planned investment in WA stood at more than $4 billion.

The price of spodumene concentrate – the hard rock lithium that Australia produces – plunged from record highs exceeding $US8000 a tonne in 2022, to $US900 a tonne on July 31, according to S&P Global Platts.

Macquarie analysts believe the supply of lithium will exceed demand over the next two years, driving spodumene prices down to an average of $US975 a tonne next year, before recovering to be $US1925 a tonne by 2028.

“Albemarle’s forecasts... were clearly not right a year ago when they made a huge investment decision,” Ms King said. “We have to be really honest about the international market. There’s a drop of about 80 to 85 per cent in pricing in lithium over a rapid 12-month period.”

Australian Bureau of Statistics figures show the number of people employed in the WA resources sector has fallen 18 per cent over the past year to 144,900. The plunge in jobs follows several years of growth and has been cushioned by gold prices hovering at record highs.

Monadelphous, a listed construction firm, told investors it would lose $200 million worth of work from Albemarle.

Lithium outlook ‘remains strong’

There is still optimism among the deepest-pocketed producers in the lithium market. Albemarle’s announcement comes just a day after Rio Tinto chief executive Jakob Stausholm said he wanted to expand his lithium business – particularly in South America – in the belief that long-term demand would be strong.

This week AustralianSuper raised its stake in another producer, Pilbara Minerals, to 9.4 per cent, and Liontown Resources produced its first spodumene concentrate from the newly built WA mine Kathleen Valley. Pilbara Minerals shares rose 4.44 per cent to $3.06, and Liontown rose 1.58 to 96¢ on Thursday, reflecting expectations that supply will rationalise.

Albemarle will begin an exploration program in Australia this year.

It owns a 49 per cent interest in the Greenbushes lithium mine and a stake in the Wodgina mine, both regarded as world-class assets. It will continue to employ about 460 people at Kemerton, and about 40 employees will stay in the Perth office, The Australian Financial Review has learnt.