The non-Chinese battery supply chain could be impacted by the global pandemic for another six months, delaying the recovery of lithium demand to mid 2021, producer Orocobre (ASX:ORE) says.

Argentina-based brines producer Orocobre says it is still making money at current prices “but in light of current operational conditions and uncertain future demand” has withdrawn guidance for FY20.

Gross cash margins for the March quarter were $US838/tonne ($1330/t) excluding export tax, down 36 per cent from the December quarter and 84 per cent on the same period last year.

Cash at 31 March 2020 was $US88.2m, down from $US115.5m at 31 December 2019 “due to funding of expansion activities” which have also been delayed by pandemic related shutdowns.


In a blunt assessment Orocobre says existing challenges in the beleaguered lithium market have been compounded by the current crisis.

“As the quarter progressed it became increasingly apparent that customers downstream, particularly those in Europe and the United States, were impacted to a greater degree than raw materials and refining operations concentrated in Australia, China and South America,” the company says.

“As a result, the supply/demand imbalance grew during the quarter resulting in greater pricing pressure for lithium chemicals.”

Car manufacturers in Europe and the US were the first to shut down operations or switch to producing necessary medical devices, resulting in a wave of closures or reduced operating rates upstream at battery and cathode manufacturers elsewhere, according to Orocobre.

“Non-battery customers including glass and ceramic producers were also forced to close manufacturing facilities as a government directive and/or due to cancelled or indefinite delays to their customer orders,” the company says.

At the end of March, European and US car plants were expected to be closed for about two to three months with an additional one to three months required to ramp operations back to previous levels.

Battery and cathode suppliers are expected to adjust operations accordingly.

“In addition, these markets (Europe and the US) are vulnerable to an economic downturn which is expected to have an impact on lithium demand to early or mid-2021,” Orocobre says.

“Furthermore, the impact on electric vehicle (EV) demand of current low oil prices remains uncertain.”

While the Chinese market has progressively restarted operations, domestic consumers have been slow to return to car dealerships and as a result, lithium chemical customers have taken a ‘wait-and-see’ approach.

“Given China’s economic troubles and low consumer appetite for domestic EV models, hopes for the Chinese market rest heavily on further government stimulus and continued strong sales performance from Tesla, particularly with the release of its highly anticipated Chinese-centric EV model later this year,” Orocobre says.

The ultimate impacts of the ongoing pandemic remain a mystery. Still, analysts say that — irrespective of temporary recessions or market downturns — electrification of the global automotive sector remains “inevitable”.

Orocobre says it “remains confident in long-term fundamentals underpinned by unwavering European carbon emissions penalties, global government EV targets and downstream expansion plans that may have been delayed, but not reduced”.