Prices for Australian lithium are set to face further downward pressure, and the competition from Chinese miners is expected to intensify, according to a recent analysis by commodity price forecaster Wood Mackenzie. This forecast has caused controversy and prompted the withdrawal of a $760 million lithium loan to Liontown Resources, a major Australian lithium project.
Liontown Resources is in the process of constructing a significant greenfields lithium mine at Kathleen Valley in Western Australia. Notably, this project stands out for having no Chinese ownership, which is a departure from the norm among Australian lithium mines.
The announcement of the $760 million loan in October was seen as a significant milestone for Australia's critical minerals sector. Traditionally, the sector relied on shareholder equity and customer prepayments due to the reluctance of mainstream banks to invest in the relatively nascent and opaque battery metals market. However, Wood Mackenzie's bleak projection that lithium prices would remain depressed for at least five more years led the lending syndicate, including Commonwealth Bank, Westpac, NAB, and ANZ, to withdraw the loan.
The withdrawal of the loan had immediate consequences, causing a 22 percent drop in Liontown shares and forcing the miner to reconsider the scope of its project and explore alternative funding options.
Over the past year, prices for spodumene concentrate, the primary product of most Australian lithium miners, have plummeted by nearly 90 percent. Allan Pedersen, the principal lithium analyst at Wood Mackenzie, stated that further declines were likely.
"Wood Mackenzie forecasts a continued decline in spodumene concentrate prices, although at a slower pace than observed recently," Pedersen explained.
Spodumene prices are closely tied to prices for higher-value lithium chemicals such as lithium carbonate or lithium hydroxide. Pedersen also noted that the trajectory of chemical prices, coupled with increased supply, indicated more challenges ahead for lithium miners.
"While we will see the expansion of Australian assets and many global producers entering the lithium landscape, putting pressure on the prices, the market balance for spodumene concentrate will remain relatively balanced due to a large proportion of production being linked to an integrated supply chain through ownership or strong offtake agreements," he added.
One notable development in lithium markets has been the growing uncertainty surrounding the viability of Chinese miners producing lithium from lepidolites, minerals that typically contain lithium in more complex structures compared to spodumene. Despite the greater effort and cost required to process lepidolites due to more waste elements, Pedersen predicted that Chinese lepidolite production would increase, especially when vertically integrated battery manufacturers like Contemporary Amperex Technology Limited (CATL) were involved.
However, Pedersen emphasized that the growth of lepidolite supply in China would depend on factors such as government permits, margins, and environmental, social, and governance (ESG) concerns.
While Wood Mackenzie did not provide specific numerical predictions for lithium prices, Liontown's managing director, Tony Ottaviano, voiced skepticism about the forecast, particularly the projection of spodumene prices remaining near $US950 a tonne until 2029. Ottaviano questioned the supply dynamics, asserting that such low prices wouldn't support the level of supply anticipated by Wood Mackenzie.
The Australian lithium sector has already felt the effects of weak prices, with Core Lithium ceasing mining operations in the Northern Territory and Albemarle canceling a major lithium hydroxide processing project in Western Australia.
Liontown's Kathleen Valley mine is expected to become profitable once it reaches full capacity, as long as spodumene prices remain above $US760 a tonne. However, it may require prices between $US1000 and $US1200 a tonne to be profitable in the year leading up to June 2025. After the withdrawal of the loan, Liontown's funding for its initial year of production, when it may face negative cash flow, remains uncertain.
Despite the loan setback, Liontown expressed its intention to continue discussions with the lending syndicate, including taxpayer-funded lenders such as the Clean Energy Finance Corporation and Export Finance Australia, with the focus on securing a smaller loan.
The Australian lithium industry will be closely monitored as it navigates these challenging market conditions, with updates expected from major players such as Pilbara Minerals and Mineral Resources in the coming days.
