Overview
The supply of spodumene, an important raw material for lithium carbonate, in Australia is a key influencing factor for lithium carbonate prices.
Though lithium carbonate prices have been volatile recently with the listing of lithium carbonate futures contract at Guangzhou Futures Exchange, the prices are fundamentally subject to the fundamentals of supply-demand balance as well as the inventory cycle.
For lithium carbonate supply, with spodumene being the most important raw material due to its outstanding advantages of relatively easy capacity expansion and high production efficiency, its production and sales situation plays a key role in locating the support of lithium carbonate prices.
Globally speaking, Australia currently contributes 85% of the total spodumene supply. Mysteel will offer a general picture of the Australia mining sector to better understand the lithium carbonate market.
Resource reserves
Australia now accommodates 13 projects in operation or under planning, with available resources amounting to 1,454.1 million tonnes, or 47.4 million t LCE (lithium carbonate equivalent), among which Greenbush and Pilgangoora are the most developed ones.
Greenbush is one of the mines with the highest grade at 1.5% Li2O, followed by Pilgangoora with a grade of 1.1%, equivalent to 13.36 million t and 8.3 million t of lithium carbonate.
Mt Holland and Kathleen Valley, on the other hand, are believed to be with greater development potential. Mt Holland is scheduled to come on stream by end-2024, while Kathleen Valley's commissioning, originally planned over April-June 2023, has been delayed due to prolonged construction of office buildings.
Table 1-1. Resources of major lithium mines in Australia
Sources: Company announcements, Mysteel
Production
The production is widely recognized as a more direct indictor gauging the actual supply of mines.
For the production in Q2 2023, Greenbush performed normally with a mild increase. Pilbara registered the highest quarterly production since commissioning due to constant upgrading of production process, which lifted the Li2O recovery rate from 66% to 70%. Mt Cattlin benefited from rising ore grade with the mining towards the center of its mineral vein. Wodgina's production dropped from the previous quarter as its parent company MinRes decided to cut the development expenses following the obtaining of mining environmental approvals. Finniss was still ramping up its production.
Table 1-2. Production of major lithium mines in Australia Q2 2023
Figure 1-1. Production of major lithium mines in Australia Q3 2021-Q2 2023
Sources: Company announcements, Mysteel
Sales
The sales situation of mines usually mirrors the downstream demand and the mine's popularity of among buyers.
Regarding Q2 2023, the combined sales volume of Greenbush, Pilbara, Wodgina, Marion, and Cattlin totaled 750,000 t, up 22.4% compared with the previous quarter. Specifically, Greenbush, Pilbara, and Cattlin's sales volume rose 27.7%, 22.2%, and 117.1% respectively quarter on quarter.
Figure 1-2. Sales volume of major lithium mines in Australia FY 2023
Sources: Company announcements, Mysteel
Cost – lithium concentrate
Australia's lithium concentrate supply now accounts for 50% of the global total, and 65% of China's concentrate imports come from Australia. In other words, the cost of Australia's lithium concentrate determines the general cost of lithium ore to some extent.
Also in Q2 2023, the mining costs in Australia dropped with the maturing of mining techniques and rising grade. Greenbush's cost dropped 15.2% from the previous quarter at $375/t (including mining expenses and loyalties), while that of Pilbara and Marion changed little at $420/t and $1,200/t respectively. Specially, Finiss' cost dropped the most with a rate of 39% at $1,415/t, and is expected to fall further amidst production ramp-up.
Figure 1-3. Mining cost of major lithium mines in Australia (mining expenses + loyalties)
Sources: Company announcements, Mysteel
Cost – lithium carbonate
Producing lithium carbonate in China using in-house lithium concentrate produced in Australia is cheaper. The cost stood at Yuan 50,000/t and Yuan 110,000/t respectively when using concentrate produced by Greenbush and Finniss, based on USDCNY exchange rate of 7.2:1 and a recovery rate of 90% for 6% lithium concentrate.
For those who use outsourced lithium concentrate, the theoretical cost would add up to Yuan 250,000/t (based on Pilbara's selling price of $3,714/t in Q2 2023), while the actual cost may be Yuan 10,000-20,000 lower since the supply is usually under long-term contracts. That is, these smelters suffered losses already when battery-grade lithium carbonate prices stood at around Yuan 215,000/t at present.
Though smelters with in-house mines were able to make profit, those relied on outsourced concentrate, which took up over 55% of total domestic smelters, suspended or reduced the production as lithium carbonate prices have been falling constantly, weighing on lithium carbonate supply.
Nevertheless, lithium carbonate prices are expected to rally finally since the supply is projected to fall. However, it generally takes at least two months for the price pivot to happen considering the reaction time of the entire industry chain. And those who use outsourced lithium concentrate are likely to resume the production in three months based on the ocean shipment time and smelters' production scheduling.
Figure 1-4. Lithium carbonate cost with in-house and outsourced lithium concentrate
Sources: Company announcements, Mysteel
Summary
The lithium carbonate cost of smelters with in-house mines constitutes the absolute bottom of lithium carbonate prices, while the cost of smelters based on outsourced lithium concentrate is the general price support. Therefore, the supply of lithium carbonate will start to fall when the prices drop below the support.
It is important to note that lithium carbonate prices will react aggressively if the new energy vehicle market revives quickly when lithium carbonate supply is sagging, especially when lithium carbonate supply is unable to be lifted shortly. The key now relies on the production ramp-up of lithium mines in Africa by end-2023 and the first half of 2024, which is key to the production recovery speed of lithium carbonate.
Written by Aggie Hu, huchenying@mysteel.com
