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Lithium producers paint gloomy picture for 2020

  • Author
  • Ben Kilbey    Emmanuel Latham
  • Editor
  • Alisdair Bowles
  • Commodity
  • Metals

London — With the market turning increasingly bearish on the near-term outlook for the lithium price, major producers continued to back that sentiment with gloomy 2020 predictions, mainly for the carbonate market.

It's been a rough year for the lithium price, with a glut of supply being met with so-so demand. However, it's more a supply issue than demand, according to sources.

Seaborne lithium prices remained static for the second consecutive week, although several market participants believe the downward pressure seen throughout the year will persist in the coming months.

S&P Global Platts assessed lithium carbonate flat at $9,500/mt, while lithium hydroxide also held at $11,500/mt. Both assessments are for battery-grade material on a CIF North Asia basis, based on deliveries to the main ports of China, Japan and South Korea.

At a recent industry conference a panel of experts forecast the price for carbonate would fall to below $7,000/mt by Q3 2020.

Although Albemarle, one the world's largest lithium producers, reported a 21.9% year on year increase in lithium sales in the third quarter, its CEO Luther Kissam said Thursday the company expects pricing pressure from China to challenge market conditions in 2020.

"We have initiated a structured program across the company to capture sustainable cost savings and expect this program to deliver over $100 million in sustainable cost savings over the next two years," Kissam said. "Taking all of this into account, our preliminary view is that our full year 2020 EBITDA performance could be lower than full year 2019 results by around 10%."

Albemarle's updated outlook for 2019 total sales decreased slightly compared with its original Q2 guidance, falling to $3.6 billion-$3.7 billion from $3.65 billion-$3.85 billion, according to the earnings statement.

China's top lithium processors Ganfeng Lithium and Tianqi Lithium recently reported sharp declines in their profits for the January-September period as a result of weaker lithium prices.

Ganfeng Lithium reported a net profit of Yuan 329.2 million ($46.6 million) for the first three quarters of 2019, down 66.2% from the same period last year.

Tianqi Lithium -- China's largest lithium converter -- reported a net profit of Yuan 139.5 million over January-September, down 91.7% year on year. The company's revenues fell 20.2% year on year to Yuan 3.8 billion over the same period.

Market views are mixed on how oversupplied the industry is, with some believing the glut comes from lower-grade material rather than battery grade. Still, the reality is that conditions for all grades have been poor so far this year.

Australia-listed lithium producer Orocobre believes market conditions for the mineral, used primarily in batteries, could be on the verge of turning around after a rough phase so far in 2019.

"While weak market conditions have persisted longer than expected, a recovery is expected when the battery supply chain reaches more manageable inventory levels. A strong acceleration in market demand growth is expected in the medium to long term as electric-vehicle manufacturing profitability improves and total cost of EV ownership lowers," the company said.

However, "short-term demand remained subdued due to the same set of factors as the previous quarter including slower Chinese EV market growth, cathode/battery performance challenges [and the] US/China trade war."

Adding to the bearish tone, Morgan Stanley said in a research note this week: "For the first time, most of the industry players we interacted with expected lithium prices to fall further ([to around] $7,000/mt) or to at least stay stable in the next 1-2 years." The bank suggested that there could be around 150,000 mt of overhang in the market. "EV sales are lagging expectations after the subsidy cuts in China and the impact of trade disputes ... we believe that part of the industry is underestimating the impact of a global deceleration on EV demand," it added.

According to S&P Global Platts Analytics monthly EV statistics, European EV sales in the first half of 2019 rose 40% year on year to 198,000 -- against an overall 2% decline for EU new car sales.

Lithium major Livent, meanwhile, is painting a more positive picture for battery-grade material.

"Our goal for 2020 is to increase lithium hydroxide volumes to meet our customer commitments, with existing customers increasing their volumes and new customers looking for Livent to supply a significant portion of their 2020 needs," CEO Paul Graves said on a conference call with investors. "Even at peak production levels, we will fall short of our committed 2020 sales volumes for hydroxide if we do not start to build inventory in the fourth quarter of 2019."

However, it depends how you digest the fact that Livent is rolling over 4,000 mt of hydroxide stock to 2020. It signals that the inventory wasn't sold in 2019.

"All of the lithium carbonate we will produce next year in Argentina will be converted to hydroxide, and even then, this won't be enough to meet our customer demand in 2020," Graves said. "As a result, we will continue buying third-party carbonate in 2020."

-- Ben Kilbey,

-- Emmanuel Latham,

-- Edited by Alisdair Bowles,