Lithium and lithium chemical prices have taken a considerable hit with 99.9 per cent China Lithium Metal Spot (99.9 per cent min) (CFD) prices tumbling to the level of CNY 550,0000 post recovering slightly in January 2019 when it registered prices as high as CNY 870,000, which marks a fall of ~ 36.78 per cent; and on a yearly basis, the spot declined by ~26.32 per cent, adding to the ASX-listed lithium mining companies woes.
Lithium chemical prices also continued to decline in the March 2020 quarter, and according to Asia Metals, the domestic battery-grade lithium carbonate spot prices were at RMB 46,500 per tonne at the end of March 2020, which marked a quarterly decline of 6 per cent.
Lithium space has been considerably impeded by an oversupplied market in the past, and just when the global lithium miners started a pullback in production to support the price, the COVID-19 outbreak impacted the demand considerably across the globe, especially in China.
The volatile macroeconomic factors have weighted down on market conditions; however, while the demand has taken a beating in the status quo, many ASX-listed lithium mining companies such as Galaxy Resources Limited (ASX:GXY) anticipate demand outlook for medium-term to remain positive amid public awareness of climate change risks and significant investment downstream in electric vehicle production capacity and battery manufacturing.
Despite a large impact of COVID-19 on China’s economy and domestic demand, it yet represents the largest market for lithium and has one of the world’s strictest emission standards. China also announced in January 2020 that it would not trim subsidies in July 2020 for China new energy vehicles or NEV.
The total vehicle production and sales in China took a hit of 45 per cent and 42 per cent on a yearly basis, respectively during the March 2020 quarter amid lockdown imposed by the Government. As per data from CAAM, NEV sales declined by 56 per cent on a yearly basis in China during the same period, excluding Tesla sales.
However, while the quarterly decline was evident and reflected the result of the lockdown, monthly economic figures for March 2020 along with NEV sales numbers indicated some signs of recovery for the EV industry.
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Recently, the State Council of China extended NEV subsidies for two years in order to support the Ministry for Industry and Information Technology’s (or MIIT’s) target of a 25 per cent penetration rate of NEVs by 2025. Apart from that, during the March 2020 quarter, various EV sales stimulus measures were announced across both, provincial and municipal levels, which is further expected to support a recovery in sales of NEVs ahead.
On the supply side, inventory stockpiles of lithium raw materials, which previously were the main driver for price and oversupplied market challenges in 2019 continues to swell; however, now the market anticipates the Government restrictions across South America to contain the COVID-19 spread could disrupt the production.
Apart from that the recent suspension of lithium operations on the domestic front along with some closure of lithium mines could also keep the production in check for short- to medium-term.
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Further Pullback By Global Giants
In the status quo, the global lithium chemical mammoth- Albemarle announced a drop of 18.9 per cent in lithium net sales, which stood at USD 236.8 million for the first quarter of the year. The adjusted EBITDA for the quarter (lithium segment) plunged by 32.0 per cent to stand at USD 78.6 million.
Albemarle suggested that the decline in lithium net sales was mainly due to the lower price and volume and mentioned that it was expected that consumers would reduce Q1 volumes as they worked off excess inventory purchased in Q4 2019.
The Company also suggested that its lithium chemical plants in Chengdu and Xinyu are now operating at reduced rates due to operating restrictions related to COVID-19 outbreak. Albemarle suggested that though so far, it has experienced minimal order reductions, customer closures and order cancellations are likely to affect speciality and technical grade products in Q2 2020.
Albemarle withdrew its full-year 2020 outlook amid the uncertainty around the duration and economic impact of the COVID-19 outbreak. The Company, however, gave a temporarily quarterly outlook and suggested that its Q2 2020 performance will be lower year-over-year based on reduced global economic activity.
The Company anticipates net sales of USD 700 to USD 775 million (overall) and an adjusted EBITDA of USD 140 to USD 190 million (overall).
While Albemarle is just an example, many other global giants such as SQM is also operating at reduced rates due to the restriction imposed by the Argentinian Government.
The Domestic Miners
Many of the Australian miners such as Galaxy Resources, Pilbara Minerals Limited (ASX:PLS) have experienced quarterly loss, and the stock price of both the miner is taking a hit on the exchange for quite some time.
While Galaxy Resources Limited extended its portfolio into the battery chemicals to support the business, ASX-listed lithium companies working with lithium-battery related technology are somewhat doing better on ASX.
For example, Lithium Australian NL (ASX:LIT) has recovered quite well from after retracing back to the low $0.045 (intraday low on 5 May 2020) from its recent peak of $0.065 (intraday high on 7 April 2020) to presently contour a high of $0.055 (as on 7 May 2020, 3:08 PM AEST).
The stock has been trading under positive territory for second consecutive trading session post announcing that VSPC Ltd- its wholly-owned subsidiary would enter the battery market with its Lithium Ferro Phosphate (or LFP) batteries, which provides significant benefits over other established lithium-ion battery, such as lower production costs, more sustainable metal inputs, and greater temperature and range tolerance.
While in the battery metal space, lithium demand is anticipated to show recovery, battery metal- nickel is enjoying a relative balance of weak demand and weak supply.
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In a nutshell, the COVID-19 outbreak has caused a significant shift in the demand pattern for lithium and lithium chemicals across China, leading to a quarterly loss for domestic as well as global lithium mining companies, clearly reflected by the falling stock prices; however, while the demand is anticipated by industry experts to recovery shortly, the lithium mining companies are operating at reduced rates and planning to curtail and keep a check on the overall production scenario.
While the pure-play lithium-related companies such as miners, processors, and producers are taking a hit, the lithium-battery technology companies are doing relatively better.