Modern Mining November 2024

COMMODITIES OUTLOOK

Lithium’s shrinking market explained By Tom Price, Head of Commodities Strategy at Liberum

Things are getting tough for the world’s lithium miners. In just 18 months, prices of their 1 mtpa global commodity trade have utterly collapsed. Down by over 80% in 2023-24, lithium’s various product prices (hydroxide, carbonate) are now marking out unstable, low volatility US$10k/t-floors. We know that these prices have moved below our estimate of the global industry’s marginal cost of production (US$15k/t LCE) – because the miners are now cutting loss-making production capacity.

W hat’s going on? Basically, the once-unassailable demand growth story of Electric Vehicles (EVs) is faltering. Yes, most consumers still believe that the ESG-related push to electrify the world’s transport systems must be done. Our best strategy to cut their emissions is to replace internal combustion engines with EVs. So why is the global EV-buying rate slowing? We see two reasons consumers are delaying purchases: on the moderating, uncertain economic growth outlook; and, they’re waiting for improved EV ‘value’ (lower costs, longer range, more recharging options). But for the miners, there is no more time to wait. For over a year now, they’ve been desperately managing the corporate hit of collapsing lithium prices. Until recently, they were largely focused on conventional margin protection. Now, at just US$10k/t for lithium, they’re simply trying to survive. Survival strategies of the miners In any commodity market, when its price falls towards the short term supply function (industry’s ‘cost curve’) – most typically in response to a surprise weakening in demand growth – the miners-processors-exporters all respond in three basic steps, in this particular order: 1. cut operating costs (mining, processing, inputs/stocks, labour); 2. delay/terminate projects; and, 3. cut production and/or close assets. For most industries, Steps 1-2 typically play out over 6-12 months, depending on the scale and duration of the

demand-price downturn. Step 3 is an economic recession strategy. Each successive step incurs a greater operating cost for the producer, undermining its ability to promptly restore overall production capability, if/when demand recovers. A popular investor view is that a large, collective cut to loss making output prompts a price recovery. But this alone can only remove a surplus, allowing a draw on supply-chain inventories, and perhaps eventually create new supply-related upside price risk. In a perfect competition market structure like lithium (many producers/consumers, no price-makers, etc.), the price typically only recovers once demand growth does. Lithium mine supply: key events Here, we list the significant announcements of the 12-months, reading the supply-side’s responses to declining lithium prices: • Dec 2023: Lepidolite mines of Jiangxi province (China) report multiple mine production cuts (incl. those of CATL, BYD, Zijin-Li). • Jan 2024: Core Lithium places 20ktpa Finniss lithium mine (NT, Aust.) on care & maintenance. • Jan 2024: IGO flags 7% cut to FY24 production guidance for 185ktpa Greenbushes (WA, Aust.). • Jan 2024: Arcadium Lithium announces >20% cut to 30ktpa Mt Cattlin (WA, Aust.) 2024 output. • Jan 2024: Mineral Resources pauses expansion plans at 50ktpa Wodgina (WA, Aust.). • Feb 2024: Piedmont Lithium cuts workforce by 30% at 26ktpa

12  MODERN MINING  www.modernminingmagazine.co.za | November 2024