Australia's lithium export 'boom' underwhelms
Peter KerResources reporterJun 27, 2019 — 5.21pmAustralian lithium exports are growing much slower than expected, and weak demand in China has analysts predicting prices for the battery commodity have further to fall.
This year was supposed to be the year a "wall'' of new supply crushed lithium prices – but while prices have slumped, export data suggests supply growth has been modest and is not solely to blame.
Galaxy Resources confirmed this week that its export volumes for the six months to June 30 would be just half that shipped by the company in the first half of last year.
Galaxy said a schedule delay would ensure a shipment due before Sunday now would depart later in the year. The admission came after the company blamed extremely weak exports in the first three months of 2019 on its customers having high inventory levels.
The company now looks set to record its weakest half-year export volumes since it restarted Western Australia's Mount Cattlin mine in January 2017.
Galaxy's admission comes less than two weeks after rival lithium exporter Pilbara Minerals said it was reducing production and sales at its Pilgangoora mine through the Australian winter in response to reduced demand from Asian customers.
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AdvertisementThe big New York-listed lithium producers have also underwhelmed on production volumes this year: Albemarle's first-quarter output fell 3 per cent following weather disruptions, while Livent also flagged lower sales because of rain and customers seeking to defer delivery of battery-grade lithium.
Chilean giant SQM's lithium production rose only incrementally over the same period.
The situation has left small companies such as Alliance Mineral Assets and Altura Mining as the main sources of Australian lithium supply growth this year.
Commodity intelligence firm Fastmarkets still expects the global surplus of lithium to rise from 28,000 tonnes in 2018 to 68,000 tonnes this year, suggesting the surplus could have been far worse had producers such as Galaxy, Pilbara and Albemarle met export forecasts.
While rising supply has been a factor in weak lithium prices, weaker than expected lithium demand at several levels of the Chinese electric vehicle supply chain also appears to be a significant factor.
Pilbara told investors that the Chinese utilities that convert Australia's lithium-rich spodumene concentrate into battery-grade lithium had been slow to construct and commission new conversion capacity, and therefore were not ready to take the volumes they had ordered.
Those comments were similar to the explanation given last month by Livent, which said battery manufacturers in China were delaying the launch of new battery products, and were therefore demanding less battery-grade lithium.
Most lithium miners have also pointed to this year's changes to electric vehicle subsidies in China, which appear to have slowed adoption of the such vehicles.
The combined effect has been a virtual halving of daily market prices for lithium in China.
UBS does not expect prices for battery commodities to improve soon; the bank expects global car sales to fall 4 per cent this year, and Chinese sales to fall 8 per cent.
''Lithium and graphite prices are seen falling further in [the three months to September 30],'' said the UBS analyst team, led by Glyn Lawcock.
UBS downgraded its 2019 lithium carbonate price forecast by 8 per cent this week, and its 2020 lithium carbonate price forecast by 21 per cent.
That led to big earnings downgrades for Galaxy and other lithium producers, and UBS said it did not expect Galaxy to turn a profit until 2023.
Fastmarkets expects a lithium surplus of 146,000 tonnes in 2020, but most pundits expect demand to catch up in the mid-2020s when adoption of electric vehicles picks up.
The bearish market conditions have attracted short-sellers to the lithium sector, with Orocobre the seventh most shorted stock on the Australian Securities Exchange, Galaxy the eighth and Pilbara Minerals the 12th most shorted
