So how is Australia placed as lithium prices show no sign of halting their 2023 slide?
Well, according to the Australian government’s latest Resource and Energy Quarterly (REQ), we are placed very nicely to ride out the downturn and while revenues will be lower as supply from here and the rest of the world rises, continuing strong growth in sales of electric vehicles of all types will underwrite the sector’s fortunes.
From record prices 11 months ago, to two year lows in recent weeks. lithium prices – for spodumene and for the key battery grade metals, lithium carbonate and hydroxide – are now at levels that allow battery companies and EV makers enough margin to continue growing markets.
Complaints about the cost of lithium have vanished (Tesla and Elon Musk have been silent for a while) and analysts say the continuing slide in lithium prices has seen a drop off in for cheaper battery alternatives that dominated media and trade reports in late 2022 and earlier this year.
For the moment lithium remains the battery material of choice because of its known qualities (and dangers) and again, low cost.
The REQ sees the price slide continuing out until 2025 as more mines and processing plants come on stream in Australia, Argentina, Canada, perhaps in the US and Chile and Zimbabwe.
The September quarter REQ backgrounded the recent lithium price experience.
"In 2022, spot prices for spodumene (concentrated ore) averaged US$4,364 per tonne, well above the average level of US$663 per tonne over the 3 years to 2021. The spot price of lithium hydroxide (a refined lithium product) averaged US$67,279 per tonne in 2022, dramatically higher than the average price of US$13,656 per tonne over the 3 years to 2021."
But this year has seen prices fall "significantly as the market swings from deficit to being in balance.”
"The high prices in 2021 and 2022 incentivised more investment in lithium production, resulting in global supply catching up to demand. The high prices of the period also drove companies to destock to reduce the cost of carrying inventory — putting further downward pressure on prices.”
Now the REQ predicts that prices will "fall further by 2025 as the lithium market enters a period of surplus supply, and is expected to result in rising stockpiles. However, prices are expected to remain well above levels traded in the few years prior to 2021."
"The average spot price of spodumene is forecast to be around US$4,190 per tonne in 2023, then decline to around US$2,090 per tonne by 2025. The spot price of lithium hydroxide is forecast to be US$58,225 in 2023, then decline to around US$37,290 per tonne in 2025.”
No wonder the likes of Pilbara Minerals is looking to expand from its spodumene production base into upgrading by trialling (and hopefully using) a lithium phosphate production method that is said to be ultra efficient using renewable energy such as solar power (of which there is a lot of sun in WA’s Pilbara region.
Pilbara’s positive share price performance (up more than 10%) so far this year makes it a standout globally when the share prices of all major competitors have fallen by between 8% and more than 40% (That excludes Liontown with its bidding way).
The REQ says Australia faces growing competition (as everyone has forecast) but points out that "Australia leads global lithium extraction, and mine production is forecast to continue growing."
"Mine production of spodumene is forecast to rise to 3.3 million tonnes (Mt) in 2023–24 and 4.0 Mt in 2024–25, up from to 3.1 Mt in 2022–23.
"Rising mine production will be driven by the expansion of existing mines, including Greenbushes, Finniss, Wodgina, Pilgangoora, Mt Marion and Mt Cattlin. Greenfield production is also due to commence at Mt Holland and Kathleen Valley over the outlook period.
And in good news for the companies and investors, while the recent fall in prices will push down on revenues and earnings, the REQ says:
"Australian lithium mines are expected to remain highly profitable over the outlook period, with long term prices projected to settle well above reported production costs.”
The REQ points out that in the 2022–23 financial year, Greenbushes, Mt Cattlin, Mt Marion, Pilgangoora, and Wodgina "reported the unit cash costs as a share of prices received (were) 9.5%, 19%, 37%, 25% and 19% respectively.”
"Australia is developing capacity to refine lithium domestically, with three lithium hydroxide refineries (operating or under construction) and a newly announced lithium phosphate refinery. This contributes to the diversifying global lithium refining and developing Australia’s battery value chain."
And while lithium exports bought in more than forecast in the year to June 30 an an estimated $A20 billion (previous forecasts were around the $15 billion level), those returns will fall in 2024 and 2025, according to the REQ.
"The value of lithium exports is estimated to have reached $20.3 billion in 2022–23, a significant increase from the previous record of $5.0 billion in 2021–22.
"The increase was driven by a near-tripling in prices over the period, as well as volumes of spodumene exports increasing by 46%. In 2022–23, 98% of spodumene by volume was exported to China., with the remainder exported to countries such as Belgium (1.2%), South Korea (0.5%), and the United States (0.1%)."
The REQ says the value of lithium exports is forecast to decline to $17.9 billion in 2023–24, and $16.2 billion in 2024–25 (which is about what the forecast for 2022-23 was six months ago!
"The declines will be driven by moderating prices over the period, though prices are expected to remain significantly higher than pre-2021 levels. In terms of volumes, spodumene exports are expected to grow at a comparatively slower pace than recent years, which will reflect an increasing share of domestic refining to produce lithium hydroxide,” the REQ forecast.
World lithium consumption is expected to maintain a high growth trajectory, due to battery demand for the energy transition alongside the growth outlook for China’s Li-ion battery manufacturing. In lithium carbonate equivalent (LCE) terms, global lithium consumption is forecast to increase from 797,000 tonnes to 1.428 million tonnes over the outlook period (from 2022 to 2025).
Thanks to booming sales in China and a step up in sales in the EU and the US, the REQ says Global EV sales are projected to more than double between 2022 and 2025 (11 million to 23 million cars per annum).
