Lithium as an investment, has gained attraction in the market over the much-anticipated battery boom and greater penetration of the electric vehicles in the global market. The economic turmoil in the market has destabilized many conventional investment assets, which in turn, is now pushing the investors toward the alternative assets.
Australia fetched the number one spot in the global lithium supply chain in 2018; however, the Australian lithium miners are now facing inundate pressure as the export from the top lithium exporting country lumbers. Lithium prices are under a free-fall mode in the international market amid the supply glut and weaker than industry anticipated demand.
The fall in the white gold prices is making it difficult for the Australian lithium miners to operate. Bald Hill mine, which was initially anticipated by the Australian Department of Industry, Innovation and Science to ramp up the lithium-rich spodumene production, is currently moving slowly as the operator of the mine is facing a financial challenge.
Alita Resources (ASX: A40) or formally known as Alliance Mineral Assets Limited is in talks with its lender-Tribeca Investment Partners Pty Ltd. Alita Resources reported another extension to the standstill period in respect to certain events of default under the secured A$40 million loan facility.
The standstill period, which denotes the additional time to progress the discussions with various parties regarding the refinancing options for the Bald Hill mine, is now extended till 29 August 2019 (07:00 PM AEST).
ASX Lithium Miners and the Demand Weakness:
While the Bald Hill mine of Alita Resources is facing the operational challenges, another Australian lithium miner- Galaxy Resources Limited (ASX: GXY)- the operators of Australian Lithium-rich Mt Cattlin mine confirmed in its June Quarterly report that the export volumes from the company was just half for the 1H FY2019 as compared to the exports volume of 1H FY2018.
Galaxy also mentioned that the lithium sector in China is currently facing the weaker overall macro sentiment headwinds, which continued to impact the market sentiments.
The prices of lithium chemicals in the domestic market of China sank marginally in the second quarter of the year 2019. The lithium down-stream sector in China continues to anticipate weaker New Energy Vehicle (or NEV) sales, which in turn, is prompting the battery-grade lithium processors to hold-off higher production.
The weakness in lithium chemical pricing in China coupled with de-stocking of high lithium inventory has exerted pressure on spodumene prices, which in turn, is prompting the suppliers to decrease the production level.
However, the market anticipated announcement from China to transit from China 5 to China 6 emission standards has prompted the automobile industry to de-stock the internal combustion engine vehicles by OEMs and distributors.
The transition could once again boost the lithium demand as it could further promote the NEV and BEV (Battery Electric Vehicles) sales. As per the data from the China Association of Automobile Manufacturers (or CAAM), the total NEV production and sales in the second quarter of the year 2019 stood at c.347,000 and c.352,000 vehicles, respectively.
The production and sales of NEV witnessed a yearly growth of 32 and 31 per cent, respectively.
As per the data, the total production and sales of battery electric vehicles (or BEVs) during the second quarter of the year 2019 stood at c.289,000 and c.283,000, respectively.
The production and sales of BEV witnessed a yearly growth of 41 and 35 per cent, respectively.
Pilbara Minerals and build-up of Chemical Conversion Facilities in China:
The current lithium chemical demand weakness in China has prompted the downstream processors to take the opportunity to build-out their chemical conversion facilities in China.
The current weakness in demand and low spodumene prices in the international market provided the Chinese downstream processors with an opportunity to increase their chemical processing capacity to take advantage of the lithium-rush forecast.
The ASX-listed lithium miner and the operator of lithium-rich Pilgangoora mine- Pilbara Minerals Limited (ASX: PLS) witnessed another quarter (Q2) with consolidated growth in spodumene production as the company intends to support the off-take partners.
The key customers of the company are making progress over the processing capacity in China, though at a slower rate; however, Pilbara is tackling the situation proactively by moderating the production during the June and September Quarters.
The supply disruption from the Bald Hill mine, coupled with reduced production from the Australian significant lithium miners such as Galaxy and Pilbara holds the potential to support the lithium prices on the supply counter.
On the demand counter, the current weakness in demand could be supported by China’s transition from China 5 to China 6 emission standards, which in turn, could support the lithium prices.
However, the tenure between the demand surge and the corresponding increase in production from the Australian miners would decide the intensity of the price change.
Lithium as an Investment Despite the Supply Glut:
The lithium investors are still eyeing the lithium market over the forecasted boom, and the recent stance adopted by the global economies such as China, Europe, the United States, etc., toward the zero-emission has indicted that the forecasted boom could be nearing.
However, the fall in demand for vehicles amid the impact on global economic conditions of the U.S-China trade war remains a potential risk for the bullish forecast.
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