Analysis: China lithium boom slows as sagging prices batter high-cost miners

Core Lithium

13/03/2024 23:00

* 
      Global lithium prices down over 80% in past 12 months
    

        * 
      Rystad slashes China's mined lithium output growth
forecast
    

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      Analysts expect mining of lepidolite in China to be hit
    

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      Almost half of China's lithium output in 2023 came from
lepidolite, Fastmarkets says
    

  
    By Siyi Liu and Andrew Hayley
       BEIJING, March 14 (Reuters) - A slump in the price of
lithium, a key raw material in electric car batteries, is
dragging on China's mining of the ultralight metal which
together with a costly extraction process is prompting a
reassessment of output growth and new project plans.
    Softening EV demand has knocked down global lithium prices,
with a basket tracked by Benchmark Mineral Intelligence plunging
more than 80% in the past 12 months. That has already forced
many producers worldwide to shutter production and cut jobs.
    In China, which accounted for about a quarter of the world's
mined lithium output in 2023, analysts expect the mining of
lepidolite - a hard rock ore that is relatively expensive for
producing lithium - to take a hit as a prolonged price slump
makes costly production unsustainable.
    "Lepidolite mining and new projects in China and worldwide
are taking a big hit from prices, while other types of lithium
mines that provide some relative cost advantages, especially
brines in South America, will keep on a fast-growing pace," said
Susan Zou, a vice president at Rystad Energy.
    The consultancy has slashed its forecast for China's mined
lithium output growth in 2024 to about 12% from 54% previously,
mainly due to the lepidolite slowdown. Globally, it now expects
27% growth in mined lithium output, down from 42% previously. 
    Almost half of China's lithium output in 2023 came from
lepidolite, pricing agency Fastmarkets said, adding volumes of
the ore more than doubled over the past two years to 114,500
metric tons of lithium carbonate equivalent (LCE).
 
   
    It costs about 80,000 yuan ($11,120) to 120,000 yuan to
process a ton of LCE from lepidolite in China, while it costs
around 40,000 yuan and 60,000 yuan to get the same volume from
brine deposits and spodumene, respectively, analysts say.
    That undermines the economics of lepidolite mining in China,
where softer EV demand and a supply glut have pushed down spot
lithium carbonate prices to around 100,000 yuan from peaks near
600,000 yuan in November 2022.  
    Five China-based analysts forecast spot prices will stay in
the 100,000 yuan to 120,000 yuan range in 2024 or rise slightly
higher, despite a futures rally boosted by restocking demand
after the Lunar New Year holiday.  
 
   
    'MARKET IS REALLY BAD'
    China ranks fourth in lithium reserves. Beijing has been
pushing for more investment to ramp up mining to meet demand
from the battery sector and to cut its reliance on imports.
    Much of that investment has been in the southern province of
Jiangxi, home to some of the newest lepidolite projects that are
rich in kaolinite, a clay mineral with lower lithium content
that costs around 120,000 yuan per ton of LCE to produce,
according to research firm CRU.
    Such projects include EV battery giant CATL's  300750.SZ 
vast new Jianxiawo mine and Yongxing Special Materials
Technology's  002756.SZ  Huashan mine.  
    CATL won exploration rights for Jianxiawo in April 2022 with
a bid of 865 million yuan, according to the government of
Yichun, the provincial mining hub.
    "Projects including the Jianxiawo mine are facing negative
margins and very high risk of production curtailment," said Yin
Yiwei, a senior CRU analyst. 
    CATL and Yongxing did not immediately respond to emails
seeking comment.
    Market speculation that CATL had suspended production at
Jianxiawo sparked a rally in shares of Australian miners last
month, but CATL said at the time that operations were normal.  
    "The market is really bad. Producers in Yichun are trying to
survive with higher costs and poor prices," said a mining expert
working for a major company in Yichun.
    A survey of 11 Jiangxi lithium carbonate producers published
by Mysteel on Feb. 28 found widespread production suspensions in
February.
    Yan Yun, secretary of the Yichun committee of China's ruling
Communist Party, acknowledged the city's lithium battery sector
had been hit by falling prices and a supply-demand mismatch.
    "But we still believe the industry has great prospects," he
told the official Jiangxi Daily, as the global auto industry
moves towards an electric future. 
    Li Liangbin, chairman of Ganfeng Lithium  002460.SZ , a
major Chinese miner that produces mostly from spodumene, sees a
role for lepidolite. 
    "Lepidolite, due to its relatively high costs and large
volumes, is a flexible variable and can help keep supply, demand
and lithium prices balanced," he said.
     
 
 ($1 = 7.1941 Chinese yuan)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China's mined lithium by category    https://tmsnrt.rs/49WNvMU
China's lithium carbonate prices    https://tmsnrt.rs/49Fe8GI
Lithium carbonate production cost    https://tmsnrt.rs/3TgK3pP
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 (Reporting by Siyi Liu, Andrew Hayley and Beijing Newsroom;
Editing by Tony Munroe and Himani Sarkar)
 ((Siyi.Liu@thomsonreuters.com;))