Pilbara Minerals pulls cash returns to shareholders in the face of tumbling lithium prices

Pilbara Minerals has pulled plans for any one-off capital returns to shareholders, blaming sentiment-driven trading by smaller players in the sector for lithium price falls.

Pilbara Minerals boss Dale Henderson says “sentiment driven” trading by smaller lithium players is behind recent price falls in the battery making commodity, as the lithium major elected to hang on to its $3bn cash pile and pulled plans for any one-off capital returns to shareholders.

Mr Henderson joined Mineral Resources in blaming tumbling lithium prices on trading patterns in the sector, telling The Australian that sentiment buying by smaller players – traders, lithium conversion plants and some refineries – was driving volatility in chemical prices, which then flow through to contracts with lithium concentrate producers such as Pilbara Minerals.

“It‘s actually more behavioural driven than necessarily the fundamentals. You’ve got a small universe of many different participants, many different chemical converters, cathode makers and, to a lesser extent, battery makers,” he said.

“Many of those smaller groups are driven by taking a view of price direction through short term and short-dated contracts. They take a view around buying when pricing turns – buy now because it’s going to be more expensive next week, or not buying this week because price is dropping and it will be cheaper next week.”

The company said on Thursday it expects lithium prices to remain volatile in the short term, after a 31 per cent price plunge for its concentrate in the September quarter.

The lithium miner said it sold its lithium concentrate for an average $UD2240 a tonne in the period, down from $US3256 in the June quarter, with the price drop “consistent with broad declines in pricing for battery grade chemicals and spodumene concentrate”.

“Demand for lithium raw materials is expected to remain consistent in Q2 FY24 which is typically a stronger period for EV sales. Market pricing for spodumene concentrate and lithium chemicals is however likely to continue to remain volatile in the near-term given uncertain macroeconomic conditions and closely managed inventories in the supply chain,” the company said.

But the company still booked operating cash flow of $257.9m for the quarter, on the back of the sale of 138,200 tonnes of concentrate in the period, at an average unit operating cost – delivered to customers – of $1122 a tonne.

Pilbara Minerals will not launch a buyback or pay a special dividend, saying marking conditions have softened at a time it is undertaking major capital spending programs.

“While the group has significant capital allocation flexibility today, with all previously disclosed capital expenditure fully funded from existing cash reserves, market conditions have softened in a period where the Group is undertaking major capital investment programs,” the company said.

Record production from Allkem’s South American lithium operations was also overshadowed by falling prices, with the company seeing a 32 per cent price drop for lithium carbonate sold into the market.

Allkem sold 4554 tonnes of lithium carbonate from its Olaroz operations, up 33 per cent from the June period. But its average received price was down 32 per cent to $US25,981 a tonne, with the company booking a 7 per cent revenue overall, to $US123m.

The company also produced a record 72,546 tonnes of lithium concentrate from its Mt Cattlin mine in WA, up 25 per cent from the previous quarter, and shipped 76,631 tonnes.

But the price fall for its lithium concentrate was even more sudden than for its chemical product, with the 76,631 tonnes shipped in the period fetching an average $US2625 a tonne – down 39 per cent from the $US4297 received in the June quarter.

Mt Cattlin booked revenue of $US201m for the period, in line with the June quarter.

Allkem said it expects to send shareholders details of its merger meeting with US lithium company Livent in November.

Pilbara Minerals shares closed down 2c to $3.86, with Allkem closing down 47c – or 4.5 per cent – to $10.09.