What's happening with lithium prices are all illusion because this is just a temporary situation. I'm not denying the low prices atm but it's just temporary and ready to explode soon.
Because the demand for EVs is actually huge,
over 40% growth rate achieved in 2023.
It's my estimation that the world's total grow rate for EV sales from 2022 to 2023 is over 40%. We will get the whole world numbers soon and this number will be confirmed. 10.5m EV's sold in the world in 2022. I am expecting over 14.5m
For the full year 2023, China's NEV penetration at retail was 35.7 percent, up 8.1 percentage points from 2022. 7.7m EVs are sold. We know the growth rate for the US in 2023 has been over 50%.
That means if we go with even a 35% growth rate in 2024 the LCE demand will be around 1.35mt as it has been around 1mt in 2023.
The lithium supply needs to be increased 350kt LCE in 2024.
It does seem impossible to me right now,
not at all at these low prices.
Low grade high cost mines will be closing.
The lithium supply in 2022 was around 750kt. By the 35% growth rate it reached to 1mt. These are the facts.
Let's have a look how the 1mt LCE was supplied in 2023 which just matched to demand and caused the lithium price crash.
It is because China started to mine its lepidolite resources like crazy in 2023 even though they were known resources since 2018 but was not touched as the spodumene price was very low in 2018, 2019 and 2020.
Those lepidolite resources are of China is about 6mt LCE in total, including low grade and high grade.
If you compare it with what LTR has in terms of LCE in KV project which is 5.7mt, you can see that whole of China lepidolite is not that much for a whole country.
When the spodumene concentrate price went over the roof to USD8,000/t the all those lepidolite resources have been meaningful to mine in terms of economical mining.
The Chinese lepidolite mines and brine plants can't produce any more than this at these low prices.
Not to mention lepidolite mining is expensive and dirty. China’s lepidolite mines are typically low grade with some reaching more than 0.8% Li2O – and yields are very low for 0.3%-0.4% Li2O lepidolites. For example, 8 tonnes of 0.4% Li2O lepidolite can produce 1 tonne of 2.2% Li2O mineral concentrate. To produce 1 tonne of lithium carbonate, about 25 tonnes of lepidolite mineral concentrate is required.
I estimate China produced around 140kt-150kt LCE from lepidolite in 2023. They will have to increase it 250kt in 2024 to close the gap of total 350kt LCE demand increase in 2024. That would only close 100kt LCE gap of total 350kt LCE. The remaining 250kt will still need to be closed.
Chinese Mozambique hard rock imports can't be any more than this in the near future.
In 2022, China also imported 50kt LCE in forms of spod and petalite concentrates from Mozambique. That is equal to around 1mt spod concentrate which is huge for Mozambique. There are 3 main mines there. However I don't think they will be able to increase it any more than that in 2024.
It is interesting that even the artisanal miners were very active in south of Mozambique. Can you imagine this; the poor people there were digging the hard rocks spod (not the concentrate, just the raw hard rock) and selling it to the Chinese merchants, then those hard rocks were smuggled to Sth Africa from the border to be sent to China by ship.
That is how the Chinese did everything to close the supply gap in 2023 just because the spod price was very high.
Chinese brine resources are also low grade with high impurity, hence the high cost. Not much of economically viable at these low prices.
Similar conditions are valid for the Chinese brine resources. They are low grade and high in impurities especially for magnesium which is hard to remove. Even though the Chinese have developed many different process techniques to produce lithium carbonate from those brines but their cost is still quite high.
I can see there is no way to close the gap of required 350kt LCE increase in 2024 by increasing production from lepidolite and brine resources in China and imports from Mozambique as the lithium price is too low to produce from low grade mines and make any more investment on them.
The Chinese converters will definitely use spodumene to produce lithium hydroxide and carbonate when the spod price is low. Then many of those Chinese lepidolite mines and brine processing plants will be closed. Many of the low grade and non integrated lepidolite mines are already closing atm because the lithium carbonate breakeven price is around 80k RMB/t for them, but the lithium carbonate price is getting close to it.
Only the couple of high grade and integrated (mining and producing lith.carb.) will be a live at these low prices.
What we are seeing now is a typical commodity cycle.
The cure for high prices is high prices,
and the cure for low prices are high prices again.
So the lithium is set to rise again in 2024.
There is nothing wrong with it. When a commodity price is high many high cost low grade mines will be profitable and they start production. Then the price will come down. When the price is low many of those low grade high cost mines will close and price will increase again.
That's what happened in 2018 to 2020. As you may remember even PLS was nearly bankrupted in 2020 (it was 15c in March 2020 when Covid hit) but then PLS has made $3.5b in two years time. Because there was not many producing mines at that time and two big mines (Altura and A40) closed down.
That is what we are seeing now. Some of the mines even here in Australia in the danger of closing down like the the lepidolite mines and brine process plants in China.
LTR is here to stay and poised to make huge money in the very near future.
As we all know LTR has a great resource which is high grade and low cost. LTR will make huge money when start production. 90% of LTR's production is already sold out. Only the price is not known yet. LTR's spod concentrate price will be dependant on the lithium hydroxide price (by a special formula which we don't know). Of course LTR will not take the China spot market lithium hydroxide price into account when calculating its spod price. Even the lithium hydroxide price in Chinese spot market is still over US$15,000/t which is still a good price to make good money, I think LTR will take the price of Korean and Japanese lithium hydroxide prices which are much higher than Chinese spot price.
LTR will be producing SC6 (6% concentrate). It will be the only company producing SC6 together with Greenbushes. We know that Greenbushes sold its SC6 at US$3,750 in Q3-2023 and they said the agreed price was going to be US$2,950/t for Q4-2023. IGO said they are not happy to sell it at that price and would reduce the sales by 25%.
I think even US$1,500/t is going to make good money for us as our cost will be around US$450/t. LTR will produce around 300kt of spod concentrate in 2024 and that would be a revenue of US$450m (AU$675m) at US$1,500/t. That's a huge money IMO.
I never consider the China spot price for SC6 spod applies to our SC6 price. That's BS. There is no one produces SC6 other than Greenbushes. You can see from the 5.3% sales price of PLS and SC6 price of Greenbushes in the same Q3-23 period which are respectively US$2,250/t and US$3,750/t, there is 67% increase for SC6.
Therefore LTR's SC6 price will never be any less than US$1,500 when the 5.3% is around US$900/t.
Chinese lithium producers Tianqi and Ganfeng are also not happy by these prices. I think they will take some actions. Most probably they will involve in battery manufacturing. That means while the downstream players improve their footprint in the upstream channels, like Tesla and BYD are both battery producers and also involve in lithium chemical production (like Tesla builds a lith. hyd plant in Texas, BYD also involved in mining), Tianqi and Ganfeng will improve their footprint on the downstream channels. That is inevitable result of supply chain movements.
There is a lot to say but I have to cut it short here.
I also want to add some comments about the BS reports of Goldman Sachs but I will do it on a separate post.
What I am doing now is just tightly holding my LTR holding, waiting for production, while watching Hancock's movements. Btw, Hancock is not a problem for is I think. If they offer a good price we might think to sell. If not we won't sell. That's so simple for me. I want to go to production. That'd be the best outcome for my investment.
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