• Allkem pulls in higher prices and ridiculous margins on South American and Australian lithium
  • Allkem’s June quarter carbonate and spodumene pricing will fall after Chinese lithium spot prices tumbled, but it says the market outlook remains strong
  • Yancoal faces FIRB hurdle on potential BHP coal mine bid

For all the talk of sliding lithium prices, miners are still raking in cash with Allkem (ASX:AKE) announcing an 8% rise in spodumene pricing for the March quarter to US$6500/dmt on a 6% Li2O basis.

AKE pulled in an 81% margin on spodumene sales from its Mt Cattlin mine in WA, generating US$123m in revenue on 21,553dmt of shipments at a price of US$5701/dmt CIF for 5.2% Li2O concentrate.

On an SC6 basis that was 8% higher quarter on quarter and above guidance, and sold another 54,604dmt of low grade spod for US$33m in additional revenue, though it expects to see lower but still very profitable prices of US$5000/dmt SC6 in the June quarter.

At its Olaroz brine project Allkem produced a March quarter record 4102t of lithium carbonate, with US$159m in revenue from 2904t of sales at a gross margin of 91% or US$47,814/t.

Don’t cry for lithium miners in Argentina.

Excluding shipments to its Naraha lithium hydroxide plant, which produced 670t for sales to customers, third party carbonate sales average a price of US$53,175/t FOB.

The weighted average of sales for the June quarter is expected to fall to US$42,000/t.


Anything to fear from Chinese lithium price?

Having risen beyond US$80,000/t last year, tumbling prices in China have pulled down north Asian hydroxide and carbonate prices to US$40,500/t and US$29,000/t respectively.

That, and Allkem’s lower contract prices for June, may concern some lithium investors from a sentiment perspective (regardless of the quite outlandish margins they continue to portend), but Allkem continues to be positive on downstream demand in China.

The first quarter is historically the slowest period of the year for EV and lithium sales, but demand continued to grow steadily.

The end of Chinese EV subsidies and price discounting from ICE carmakers who would fall foul of emissions targets after July this year has also led to slower than expected EV demand growth.

“As a result, inventory levels reached what has been perceived as high level but, in reality, is a more normalised situation,” Allkem says.

“This is in contrast to the extremely low stocks held in 2022, especially considering the complex, geographically diverse and geopolitically risky lithium supply chain characteristics.”

But despite the price volatility, Allkem says fundamentals for EV demand remain strong.

“EV sales continued to grow during the March quarter, with notably Chinese EV sales increasing by 25% YoY and sales in the US and EU also posting strong growth and higher-than-expected penetration against ICE vehicles,” the company said.

“Despite a slower start to the calendar year, global EV sales forecasts remain at ~14 million units, implying a steady acceleration during the remainder of 2023.”

Spodumene shipments to China have risen 20% over the past year while lithium chemical production in China has fallen 4%, but that may not present an accurate picture of the supply and demand nexus, given product is largely locked up under offtake deals or for internal consumption by integrated producers.

Allkem, which is itself undertaking an ambitious expansion program via its Stage 2 development at Olaroz and the construction of the Sal de Vida brine project in Argentina alongside the ramp up at Naraha, says supply forecasts remain optimistic for new battery grade material.

“Whilst additional lithium supply is expected to be brought online in the near to medium term, the quantum of the increase is likely to continue to lag relative to consensus views on timing,” the company said.

“Recent news about the shutdown of independent Chinese lepidolite production due to costs being higher than the local spot price are a reminder of how exposed the supply chain can be when relying on high cost and technically challenging swing capacity.”


Allkem (ASX:AKE) share price today:


Don’t you worry about FIRB, let me worry about blank

The Australian boss of our largest standalone coal miner, which is backed by Chinese interests, has laid out a case to receive Foreign Investment Review Board approval should it be selected as the top bidder for BHP’s Daunia and Blackwater met coal mines in Queensland.

Chinese investment has slowly crept back into Australia over the past year or so, largely in the mining sphere where an investment from Baowu Steel in Rio Tinto’s (ASX:RIO) Western Range iron ore mine accounted for the bulk of a $2.1b influx from the Middle Kingdom.

Despite a 170% rise on 2021, when relations between Australia and China were frosty to say the least, that remains the second lowest level since 2007 and there remain doubts around whether the FIRB would help a majority Chinese-owned company take control of a major mining operation like the hive-off of BHP’s BMA business.

It comes after the company rejected a “lowball” takeover offer from its Hong Kong listed Chinese parent Yankuang Energy that had Australian minority investors crying foul last year.
Yancoal (ASX:YAL) has a mighty balance sheet after paying off its debt early on the back of record recent coal prices, with the eradication of US$3.1b of debt since October 2021 leaving it with $2.8b of cash as of March 31, only slightly encumbered by a coming dividend and $1.5b FY22 tax payment.

But if Yancoal really is the leading bidder in a hotly contested M & A process, FIRB could well stand between BHP and a top price.

Yancoal boss David Moult declined to comment on reports from The Australian that it was leading the process to acquire Daunia and Blackwater, but noted it had a strong balance sheet and “clear growth strategy”.

“You can assume that we are continuously exploring growth prospects in high quality jurisdictions where our expertise can drive and create value for our shareholders,” he said.

“As far as FIRB is concerned, Australia’s a region of focus for Yancoal’s growth objectives and if we look at this from a non-specific point of view, and not any specific assets, Yancoal has been in Australia for many years and is a significant Australian mining company with a long track record of reputable operational performance and corporate good standing.

“We’ve acquired assets in the past that have been subject to FIRB approval and we engage with FIRB on a fairly regular basis in our normal course of business activities.

“Clearly given our ownership structure the rules dictate FIRB approvals requirements for certain transactions we may consider in the future.

“Those regulatory processes are not our business and are not in our control. All we can do is to continue to operate in a responsible manner and focus on our business.”


Structural imbalances ‘support thermal coal market’

Yancoal’s March quarter prices of $347/t, up 35% year on year but down 18% on the December quarter, provided a buttress against flagging production as labour shortages and wet weather impacted the Moolarben, Yarrabee and Middlemount coal mines.

ROM production at Yancoal’s east coast mines fell 16% YoY to 11.2Mt, with sales of thermal coal dropping 30% YoY to 4.7Mt. Met coal sales lifted slightly YoY to 1.2Mt, with overall sales volumes falling 24% on 2022’s March period.

A mild winter in the northern hemisphere has seen thermal coal prices more than halve since the end of 2022 with demand from Europe to replace Russian tonnes falling as its gas and coal stocks have improved.

But Yancoal, which has kept guidance unchanged at 31-36Mt at costs of $92-102/t, expects tight markets to support thermal prices later this year.

“We are still encountering issues with Russian supply in our main markets — Japan, Korea, Taiwan — and that will be ongoing whilst the Russian-Ukraine crisis continues,” Yancoal marketing head Mark Salem said.

“And if we look at our other competitors in the marketplace — Indonesia, South Africa, and Colombia — there continues to be sovereign and weather issues that will remain within those countries as well.

“So there still remains a lot of uncertainty and structural imbalances going forward.”

He said European demand, a larger share than normal of Yancoal’s sales last year due to the Russia-Ukraine crisis, could return later this year as stocks deplete.

“The Europeans experienced a mild winter, and they were reasonably well stocked, but they have expressed interest if their stocks do come down, going into Q3-Q4,” he said.

“So that’s something we’re keeping a very close watchful eye on. And, of course, we’re selling now more coal into Asia, we are fully sold, and we will maintain that position in terms of the market demand.”


Yancoal (ASX:YAL) share price today: