With many domestic smelters relying on lithium ore produced in Australia, the Australia lithium ore price is an important factor influencing domestic lithium carbonate prices. Mysteel believes that the Australia lithium ore prices are more than likely to fall in 2024 amid rising supply of both spodumene concentrate and brine-extracted lithium carbonate.
China's lithium carbonate prices were weak throughout November, and recorded Yuan 124,000/tonne for battery grade lithium carbonate as of November 24, a drop of 22.5% month on month (MoM).
The lithium ore prices dropped as well, after Australia lithium ore, which took up the majority of domestic raw material supply, adopted a new pricing method from Q-1 to M+1 or M+2 (settled based on the spot prices after arriving in China). As of November 24, the 6% spodumene concentrate prices lost 13.6% from last month at Yuan 1,900/mtu.
Supply:
The six major lithium mines in Australia produced a total of 892,000 tonnes spodumene concentrate in the third quarter of 2023, rising 4.5% from the last quarter, and 27.8% year on year (YoY). Among them, only Pilbara's production reduced due to the suspension of P680 project and Ngungaju processing plant for expansion and maintenance respectively, in addition to falling recovery rate. And the others reported rising production amid capacity ramp-up.
Figure 1-1. Australia Lithium Mines Production
Sources: Company announcements, Mysteel
Sales:
The spodumene concentrate sales volume of the six major mines in Australia was 829,000 tonnes in total in the third quarter, marking a quarterly fall of 4.9% but rising 22.9% from last year. The quarterly fall was mainly attributed to persistently dropping lithium carbonate prices, which weighed on the demand for raw materials.
But the sales of Mt Cattlin outperformed thanks to its rising grade and easy mineralization when the project approached the central area of the main ore body.
Figure 1-2. Australia Lithium Mines Sales Volume
Sources: Company announcements, Mysteel
Inventory:
The cumulative spodumene concentrate inventory starting from Q3 2021 (based on cumulative production minus cumulative sales) held by Australia lithium mines totaled 64,000 tonnes in Q3 2023, most of which was contributed by Wodgina. Though the inventory accumulated in the third quarter, the level was still low, which could only meet the production needs of domestic smelters for one week.
Figure 1-3. Australia Mines Cumulative Spodumene Concentrate Inventory
Source: Mysteel
Imports:
China's spodumene imports from Australia totaled 346,000 tonnes in October 2023, falling 13.3% MoM but climbing 76.5% YoY, against a total spodumene imports of 459,000 tonnes in the same month, a monthly drop of 8% and an annual growth of 80.3%. In other words, Australia spodumene still took up the most of China's total imports.
However, it is estimated that the significance of Australia spodumene will weaken with lithium ore projects coming on stream or ramping up the production in Africa (Nigeria, Zimbabwe, and South Africa), Vietnam, and Canada, in addition to rising domestic supply on the backdrop of technology advancing.
Figure 1-4. China Imports of Australia Spodumene
Sources: GACC, Mysteel
Cost:
Based on the spodumene concentrate mining cost (FOB) disclosed by the mines, Greenbushes is with the lowest cost at $343/tonne in Q3 2023, which was correlated with its high production and high yield rate in the quarter. The mining cost of Mt Cattlin was also relatively low at $636/tonne.
When converted to the lithium carbonate production cost in China, it reported Yuan 53,000/tonne with Greenbushes, Yuan 63,000/tonne with Pilbara, Yuan 70,000/tonne with Mt Cattlin, Yuan 86,000/tonne with Wodgina, Yuan 100,000/tonne with Mt Marion, and Yuan 114,000/tonne with Finniss, for mining-smelting integrated smelters after counting in ocean freight, smelting charges, and based on an average recovery rate of 88%.
Figure 1-5. Australia Lithium Mines Mining Cost Q3 2023
Figure 1-6. Integrated Smelters Production Cost with Australia Lithium Ore Q3 2023
Sources: Company announcements, Mysteel
Pricing method: from Q-1 to M+1
It is learned by Mysteel that some domestic lithium salt smelters are negotiating the pricing method of Australia lithium ore in Q4 2024 and onwards.
Q-1 was once the mainstream pricing method on the market. That is, the Australia lithium ore settlement prices with smelters are subject to the average price of lithium carbonate in the previous quarter.
When lithium carbonate prices are with momentum, the smelters will gain considerable profits from low cost and high selling price. But if lithium carbonate prices fall, the smelters have to bear the losses due to high raw material cost and low lithium carbonate prices.
The latest pricing method, M+1 or M+2, means that the lithium ore prices are settled based on the average lithium carbonate price in the next month or month after next.
In this case, the smelters are able to mitigate the risks stemming from falling lithium carbonate prices, as the production cost drops along with falling lithium carbonate prices. However, the smelters will also give up the profits allowed by rebounding lithium carbonate prices.
Generally, the lithium mines may surrender certain profits to benefit the downstream smelters amid times of difficult. But the mines are still relatively tough, hence only Pilbara has accepted the new pricing method of M+1 up to now, and the rest are under negotiation.
Summary:
Looking ahead to 2024, most lithium mine projects in Africa are scheduled to extensively ramp up the production in Q1, 2024. In addition, the supply of brine-extracted lithium carbonate with lower cost is climbing in Chile and China.
As such, Mysteel estimates that the prices of 6% spodumene concentrate originated from Australia are likely to fall below $1,400/tonne in 2024.
Written by Aggie Hu, huchenying@mysteel.com
