The global lithium industry has faced a downturn in recent months as a supply glut pulled prices down, with analysts continuing to forecast a bleak picture for the battery metal.
Lithium prices fell as much as 70% in 2019, with major firms such as Tianqi Lithium Corp.; Albemarle Corp.; Mineral Resources Ltd.; Wesfarmers Ltd.; and Sociedad Quimica y Minera de Chile SA, or SQM, struggling as a result.
China's Tianqi Lithium is struggling to repay a portion of a US$3.5 billion loan the company used to fund its acquisition of a 24% stake in Chilean lithium producer SQM in May 2018.
Moody's downgraded the corporate family rating of Tianqi Lithium to B1 from Ba3 in December 2019, citing weak measures to lower leverage that increased on the back of its acquisition of SQM. Tianqi Lithium had outlined plans to raise up to 7.0 billion Chinese yuan earlier that month.
SQM and Wesfarmers recently pushed back a final investment decision on the Mount Holland joint venture in Western Australia to the first quarter of 2021, while Albemarle and Mineral Resources mothballed the Wodgina operation in late 2019 due to "challenging global lithium market conditions."
Earlier this week, Pilbara Minerals Ltd. said POSCO intends to undertake further due diligence on market conditions and conduct additional technical studies for the design of a proposed chemical conversion facility in South Korea. The joint venture could take another six months to finalize, Pilbara Minerals noted.
Lithium commodity experts had predicted the market would bounce back in 2020, with higher electric vehicle uptake in Europe expected alongside China abandoning plans to lower electric vehicle subsidies.
On the contrary, supply cuts applied by miners and the extension to Chinese subsidies have failed to lift lithium and cobalt prices, according to Morgan Stanley. The investment bank's China analyst expects an intensification in competition and pricing pressure, which may halt any potential recovery in lithium pricing.
In addition, China spot prices have remained below Morgan Stanley's marginal cost estimate since October 2019, with spodumene prices plummeting below US$500 per tonne. While the latest round of supply cuts deducted about 20,000 tonnes from Morgan Stanley's 2020 production forecast, it expects the prevailing spodumene supply glut to maintain weakness in Chinese prices for the commodity. Spodumene is a pyroxene mineral and a source of lithium.
Meanwhile, Wood Mackenzie said a downturn in the lithium market was necessary for the London Metal Exchange to launch its lithium contract in 2020. The contract is expected to be met with a lukewarm reception by all players in the industry, while the research firm's analysts said it is a "step forward" in increasing transparency in lithium pricing.
Supply tightness through the short term is not expected, despite several mine closures and expansion cutbacks, Wood Mackenzie said in its 2020 forecast, adding that the ramp-up of South American lithium brine operations is forecast to be slower amid challenges related to water rights and technical issues.
Bank of America dissented from the other analysts' forecasts, tagging the commodity as an important metal for future technologies together with nickel, copper, cobalt and palladium. The investment bank said the lightweight metal is part of a larger picture in reducing Scope 3 emissions, particularly as a key component in energy storage solutions. Scope 3 emissions are indirect emissions that occur in a company's value chain.
As of Jan. 30, US$1 was equivalent to 6.94 Chinese yuan.