Lithium companies soldier on as price headwinds blow

After peaking at the beginning of 2018, the price of lithium has crashed below US$10,000/t as a consequence of global trade tensions and the scaling back of electric vehicle subsidies in China, factors that have turned 2019 into a difficult year for some companies.

“Lower lithium pricing has decimated the share prices of just about any company involved in lithium production, development or exploration. There are likely too many lithium companies in existence today and I would think that we'll see this number shrink in the coming months,” Chris Berry, energy metals strategist at New York-based consulting firm House Mountain Partners, told BNamericas.

Chile's SQM, the second largest lithium producer in the world, recently reported a 47.5% year-on-year drop in net income to US$70mn for the second quarter, from US$134mn in 2Q18. But SQM wasn't the only company hit.

"We've seen lithium supply growing more than demand over the past few quarters, putting pressure on prices," SQM CEO Ricardo Ramos said in a statement.

After the SQM earnings announcement, its shares on the Santiago stock exchange shed 6.6%, while competitor Albemarle's shares were down 4.4% on the New York Stock Exchange.

Australian firm Orocobre's net profit dipped to US$24.8mn for the year ended June 30, compared to US$25.7mn earned in the same period of 2018. 

Even if prices continue to fall, electromobility and renewable energy demand are increasing and in South America a number of lithium projects are advancing through construction and production.

“Lithium demand should be roughly 1Mt by 2025-2026, up from 300,000t today. No other commodity is growing at this rate and substantial amounts of capital are still needed,” said Berry.

This year Orocobre and Toyota Tsusho has spent US$40mn of approximately US$285mn on an expansion of the Salar de Olaroz phase 2 project in Jujuy province, Argentina, while Lithium Americas and Ganfeng Lithium have invested US$163mn in the Cauchari Olaroz construction in the same province.

In Chile, SQM announced a US$360mn investment to expand annual output to 120,000t during the second half of 2021 and 160,000t by the end of 2023.

Early this year, Albemarle's board approved a US$100mn additional investment in the Salar de Atacama plant in Chile to use new technology to raise lithium production without increasing their level of brine extraction, but this month the board decided to reduce the investment planned for the country over the next five years and delay plans to increase annual production by 125,000t. 

Meanwhile, in Bolivia the government is seeking to develop its lithium potential and now plans to invest US$2bn in the mining and metallurgical industries by 2020.

According to Berry, lithium has a bright future and the market could see increased merger and acquisition activity in the sector as it consolidates, but there are some tough times ahead until pricing rebounds.

“While Bolivia is still viewed as a dangerous place to invest, Chile and Argentina will continue to be world leaders in lithium production based on their low cost profiles and proven processing technologies. Both the public and private sector must work together in these countries to ensure success for all involved,” Berry said.