Why pain can turn to gain for lithium prices

Arcane Capital Advisors’ YueJer Lee says the lithium market has already found a bottom
Prices are so far into the cost curve companies are delaying projects, slashing output and stockpiling production
Advanced ASX lithium companies are kicking on with exploration despite market woes

Lithium’s wild ride is continuing to squeeze the industry with global prices at their lowest since 2021 in the wake of a flood of new supply and softening demand growth from the EV sector.

Many analysts believe prices, which are trading near the marginal cost of production, have already found a bottom as most Australian spodumene producers are now unprofitable at prices below US$1,000/t.

YueJer (YJ) Lee, director and co-fund manager at Singapore-based Arcane Capital Advisors, says prices are so far into the cost curve that companies are delaying their projects, slashing output and stockpiling production.

One of the first lithium companies to suspend operations in light of weak market conditions was Core Lithium (ASX:CXO) in January, having kicked off the production and sale of spodumene concentrate from its Finniss mine in the NT in February 2023.

Greenbushes, the world’s largest hard rock lithium mine owned by joint venture partners Tianqi Lithium/IGO (ASX:IGO) (51%) and Albermarle Corporation (49%), followed suit later in January this year, stating output would drop from between 1.4 – 1.5Mt to 1.3 -1.4Mt with sales slumping 20% lower than production.

And more recently, Rio Tinto target Arcadium Lithium (ASX:LTM) announced plans to idle its Mt Cattlin spodumene mine in next year’s first half, while Pilbara Minerals (ASX:PLS) lowered FY25 production last week with plans to put its Ngungaju plant on care and maintenance from December this year.

The plant has a nameplate capacity of 180,000-200,000 tonnes per year of spodumene concentrate but has a lower capacity and operates at higher cost than the company’s Pilgan plant, which also produces spodumene concentrate.

Lithium expert Joe Lowry praised the discipline of the PLS board, telling followers on LinkedIn no credible source showed demand growth imploding and predicting a return over time to incentive pricing with higher lows due to a steepening cost curve.

There are other analysts, like Lee, who share this belief that the market will come around.

Learning the mistakes of two years ago

“Nobody saw African supply coming online that quickly, it has really taken the market by surprise but now that we are on the flip side, everybody is saying lower prices for longer,” Lee said.

“It’s like they never learned from the mistakes of just two years ago.

“All these immediate supply cuts are already happening with massive delays in some of these projects that were supposed to be coming online in the next few years.

“In some cases, it is to do with lack of financing where some companies couldn’t raise the funds for the development capex early enough and for others it’s simply a case of deferring the capex – they might have the cash but don’t want to put it in right away.”

But while supply is falling, demand continues to grow.

Low prices, high demand growth

Lee sees demand growing faster next year than it has this year simply because low prices catalyse higher volumes of demand. In other words, as the cost of battery inputs fall, the end product becomes more affordable for customers.

“We are seeing huge increases in the volumes of energy storage, going 50% year on year, we are seeing pick-up in demand growth in trucks and buses and while demand growth in EVs has slowed, next year could be slightly better as well,” he said.

“From all these perspectives, I think the market is already coming back into balance and by the middle of next year we should see the market back in a neutral position and maybe towards the end of the year even heading into a deficit.

“Lithium prices might be low right now but the industry is just working through what’s left of the inventory and a slight bit of oversupply, but the market is already starting to turn.”

Mines tend to cut production when prices sink dramatically, then prices bounce back into some scope of parity as the supply-demand balance readjusts.

Counter-cyclical M&A, such as Pilbara Minerals’ acquisition of Latin Resources (ASX:LRS) and Rio Tinto (ASX:RIO) circling Arcadium may be another sign of brighter things to come.

As too is the fact deep pocketed investors with extended horizons continue to support companies in the industry.

Resources entrepreneur and corporate finance specialist Tolga Kumova has kept his holding in Pilbara lithium play Raiden Resources (ASX:RDN) since first nabbing a stake in the company in 2020.

RDN’s Andover South project is adjacent to Azure Minerals and Mark Creasy’s world-class Andover lithium discovery near Roebourne, which sparked a $1.7b takeover by Gina Rinehart and Chile’s SQM earlier this year.

A recent cash injection of $10m via a placement to investors in early October set RDN up nicely to kick off an expanded drill program of up to 15,000m to evaluate seven key target areas dotted with pegmatites that span over 4.2km in strike and up to 50m in width.

The decision to conduct the placement and expand the drill program was made after Raiden’s geologists identified additional high-grade drill targets, with a significant portion of surface samples returning over 1% Li2O and stand out results of 3.80% Li2O, 3.64% Li2O and 2.97% Li2O.

Advanced lithium explorers carrying on with exploration

Other explorers are looking through the noise and continuing lithium exploration with an eye the long term prize.

GreenTech Metals (ASX:GRE) and Future Battery Minerals (ASX:FBM) are two explorers refusing to slow down exploration programs despite the market slump.

GreenTech, which has ground to the west of Azure’s Andover LCT pegmatite, has been carrying out soil sampling at the Kobe South prospect where peak assays from a lithium soil trend over 5.5km strike returned between 200-467ppm Li2O.

While the company is yet to join all the dots, GRE is confident its tenements contain what Azure initially had before the discovery was drilled: High-grade rock chips with pegmatites at surface.

Previous lab tests have confirmed spodumene as the dominant lithium mineralogy at both the Kobe and Osborne pegmatites where exploration remains largely limited.

But with approved programs of work (approvals required for drilling in WA) and all heritage clearances completed, the company is hoping to begin drill programs on the project sometime in the near future.

Lithium and gold focused junior Future Battery Minerals (ASX:FBM) has been expediting exploration across its newly staked WA Goldfields land package with soil sampling programs.

Situated immediately north of FBM’s flagship Kangaroo Hills lithium asset, the Miriam project hosts high-grade spodumene-bearing pegmatites where rock chip samples returned up to 2.0% Li2O.

Geochemical soil sampling previously undertaken by Corazon Mining (ASX:CZN) had also revealed a primary target of ~1.6km in strike length, with a second trend spanning ~600m.

Latest programs have identified promising drill targets across Miriam, including a further four new anomalous lithium zones, prompting the start of scheduled ground gravity geophysical surveys over the coming month.

Preparations are also underway for the initial drill program at Miriam, scheduled for H1 2025, with the plan to target the +1.5km soil anomaly at the southern end of the Miriam tenure, correlating with both spodumene outcrops and key geophysical targets.

At Stockhead, we tell it like it is. While Raiden Resources, Greentech Metals and Future Battery Minerals are Stockhead advertisers, they did not sponsor this article.