Brighter outlook lifts lithium sector
Better than expected results from two of the world’s biggest lithium producers have brought relief to the battered local sector.
Better than expected results from two of the world’s biggest lithium producers have provided much-needed relief to the battered local sector.
The chief executive of US-based lithium producer Livent, Paul Graves, used the company’s latest quarterly report to highlight what he said were improving demand fundamentals and an increasingly positive outlook for lithium prices in the long run.
Albemarle Corp, whose lithium assets include a 49 per cent share in the big Greenbushes mine in Western Australia’s southwest, released quarterly earnings that were ahead of analyst estimates and lifted full-year earnings guidance.
The twin pieces of good news drove a healthy rally in locally listed lithium stocks, which have endured a rough 18 months amid a supply glut that has swamped the market. Galaxy Resources rose as much as 13 per cent, while Orocobre and Pilbara Minerals climbed more than 8 per cent.
Speaking to investors and analysts on Wednesday night, Mr Graves pointed to strong growth in the market for electric vehicles — which he said was up 45 per cent over the first half of the year — while global sales of lithium hydroxide, a processed form of lithium that attracts a price premium, had roughly doubled.
“There is a supply overhang that is likely to prevent prices from increasing before 2020,” he said. “However, demand is growing faster than we have previously forecast, and supply additions are slowing.”
While Mr Graves’ comments about the lithium market were broadly positive, he raised concerns about the state of play in Australia, whose spodumene mines have contributed the bulk of the new lithium supply that has come on line in recent years. He said there was a continued oversupply and excess inventory of spodumene in Australia and many mines were operating at the marginal cost of production.
“Spodumene expansions in Australia are being delayed as we believe that current spodumene pricing is insufficient to cover both operating costs and reinvestment cost for many producers,” Mr Graves said.
“And crucially, previously announced projects to build at mine hydroxide plants are also being reassessed, as both capital costs of construction and the forecasted operating cost are simply too high for them to be viable with prices where they are today.
“Not surprisingly, given the environment we are in, traditional financing for new projects is largely unavailable, and non-traditional financing sources are all prohibitively expensive.”
Albemarle said it had delivered a 14 per cent increase in earnings per share during the second quarter as all of its businesses met or exceeded expectations.
Chief executive Luke Kissam said in a statement the company’s lithium arm had recorded year-on-year growth in both volume and price, while the recent changes to its proposed deal with Mineral Resources would allow the company to reduce its capital expenditures “significantly”.