Orocobre feels lithium price hit
Orocobre says the price it gets for its lithium products has almost halved since a year ago, amid a global production glut.
Lithium producer Orocobre says its Argentinian lithium operations are still generating cash despite tumbling prices for the battery metal, as the once high-flying sector faces a global shake-out.
Orocobre received an average $US4810 a tonne for its lithium carbonate products in the March quarter, the company said in its March quarter production report, down 11 per cent from the December period and just over half of the average $US9451/t sale price a year ago.
It blamed “aggressive competitor behaviour” for the tumbling prices. Despite closures of some Australian hard-rock lithium mines in 2019 — some of which have returned to production — a glut of supply remains in the market and lithium major SQM has made no secret of its intention to recapture market share lost as new producers entered the market even if it means pushing prices down.
ASX-listed Orocobre released its March quarter production report on Wednesday, saying its Argentinian brine operations were forced to halt in the period due to the coronavirus which, along with planned maintenance, cost it 21 days of lost production.
Orocobre produced 2732 tonnes of lithium carbonate in the period, down from 3075 tonnes a year ago, and said its cost of sales had fallen 5 per cent since last year.
The company blamed softening demand and “aggressive competitor behaviour” for falling prices, saying it was concentrating on growing it proportion of sales into long-term contracts with trusted customers in response to competitor discounting.
But Orocobre said its operations were still generating cash despite the tumbling lithium carbonate price, saying it still generated a cash margin of $US838/t during the period.
The company said its expansion into lithium hydroxide production had been delayed by the coronavirus crisis, however, with work at its Olaroz plant in Argentina delayed due to movement restrictions.
Work at its Naraha plant in Japan, a partnership with Japanese car major Toyota, had not been affected by coronavirus restrictions, the company said, but completion could still be delayed by several months by interruptions and delays elsewhere in the supply chain. Naraha is 50 per cent complete, Orocobre said.
Orocobre is the first major Australian lithium producer to deliver its March quarter report, and its figures suggest lithium investors face grim reading ahead as the sector approaches a global shake-out.
In February Chinese lithium heavyweight Tianqi flagged a $US400m ($630m) net loss for 2019, and said last week it expected a loss of about $111m in the March quarter, admitting it faces problems paying its debts.
It has already run into problems paying trade creditors from its Australian operations, putting the commissioning of a WA lithium hydroxide plant on hold. And annual accounts for the Greenbushes lithium mine — of which Tianqi owns a 51 per cent stake — show it is late in paying for $174m worth of product from the mine.
The company’s troubles mean its share of Greenbushes, the biggest lithium mine in the world, is on the market with major resources companies including Rio Tinto, Fortescue Metals Group and BHP Group said to be looking over the asset.
Orocobre’s March quarter report will be followed by that of WA producer Galaxy Resources on Thursday, with Mineral Resources set to report on Friday and Pilbara Minerals the following week.
Orocobre shares closed up 2c at $2.08 on Wednesday.