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As always very informative and useful post that I hope many will...

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Mturns

54 Posts.

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19/06/19

06:38

Post #: 39123452
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Originally posted by Sjlasx: ↑

Some simple information on Chinese converters...

They aren't actually profitable at the moment.

They've been caught between a need to purchase high grade Australian spodumene (and they consider all operating Australian producers "high grade") to meet high standards being set by international BG Li purchasers and falling LiOH & Li2CO3 pricing.
They cannot compete with the final product pricing being set by South American brine producers.
The independent non-integrated Chinese converters are really struggling.
China has taken the long term view that they must dominate the BG Li market and will not stop bringing converter capacity online and are prepared to operate at losses going forward.
Australian hard rock spodumene flooded the Chinese market in the past 18 months which has led to recent greater bargaining power.
They are trying to tie spodumene pricing to a ratio of LiOH & Li2CO3 sales prices to make their converters profitable in the future. However sales contracts are negotiated individually.

The Chinese have now taken the opportunity to put a squeeze on certain Australian producers. Those identified as new mines with high debt and high operating costs that as a result have less bargaining power. Those operations are receiving significantly lower pricing for their spodumene regardless of grade.

They know that those producers who haven't reduced their costs will face the risk of going under. With short term spodumene oversupply they are prepared to let that happen.

There's some masterful trickery at play too. Given their converters are operating at losses, they have even dressed up offtake agreements as Converter JVs in order to further put the squeeze on at least one of those at risk operators. It's all about further linking spodumene acquisition costs to converter operating losses.

There are three obvious Australian hard rock companies that are at risk - those fitting the high debt / high operating cost identity.

There are some very serious questions retail holders should be asking the management of these companies and any company that buys into a Chinese converter without getting the bargain of the century.

The good news for GXY is that it will weather the storm. It has no debt, high cash levels and low operating costs. Mount Cattlin has been operating a long time. The completed YOP couldn't have come at a better time for LT holders. GXY has the bargaining leverage to prosper. GXY doesn't need to bend to the tactics being forced on some other players. The Chinese know, and accept this. GXY will receive higher contract pricing.

There is so much speculation about perceived profits being made by Chinese converters at the cost of Australian producers. This is not the case. The converters are running at losses and the State will continue to allow it.

There's light at the end of the tunnel for GXY holders and opportunities waiting to be made with their cash reserves. The sector will look very different in 12 months time.

DYOR - FOR ENTERTAINMENT PURPOSES

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As always very informative and useful post that I hope many will read and absorb. You're one of the few posters that appears to have an in depth understanding of the situation.

So a few questions to continue this great discussion......

Why is it the converters are running at a loss? Are they being pushed too hard from the auto manufacturers? Does the economics of lithium batteries not align with retail expectations/requirements for car prices? Is it the high prices that they were paying and are prices even sustainable at current prices?

And the big one that does concern me is......

How is it that our management team could not see this coming? Did they really just get completely played?

GXY Price at posting: $1.37 Sentiment: Hold Disclosure: Held
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