In June 2019 global lithium chemical production reached record levels as Chinese producers continue to increase capacity
June 2019 saw China responsible for an estimated 69% of lithium carbonate equivalent (LCE) supply as Chinese producers made further plans to increase conversion capacity.
The start of the quarter saw reports emerge that General Lithium planned to begin construction on a new spodumene conversion facility with a capacity of 60,000 tonnes per year LCE in Yichang, in Hubei province, China. This would mark a significant increase on General Lithium’s production capacity, which currently sits at 22,000 tpa.
It was reported that the company is targeting initial production in late-2020, however, Benchmark Minerals does not expect production before 2021. This announcement could also indicate a move away from its new Hubei facility which has been reported to have issues with licenses.
Ganfeng Lithium also announced capacity expansion plans in May, with the company approving a resolution to double the capacity of its Mahong battery grade lithium hydroxide facility, commissioned in September 2018, from 25,000 tpa to 50,000 tpa LCE. The company referred to “domestic and overseas market demands for high-end lithium salt products as well as the long-term orders of the company” as the rationale behind the expansion.
Ganfeng has agreed a number of supply deals with cathode manufacturers and western auto manufacturers in recent months – April saw Ganfeng agree a ten-year memorandum of understanding with Volkswagen.
Beyond these announcements another Chinese major making steps towards expanding its conversion capacity is Tianqi whose 24,000 tpa Kwinana hydroxide plant – based in Western Australia – is moving towards initial production, although major volumes are unlikely to be seen before Q4 2019. Stage two of this project should see capacity double, however, the speed at which this is undertaken will be dependent on consumer uptake.
Outside of the majors, limited new chemical production volumes have reached the market from smaller converters in much of H1 2019. In fact, there are signs from the Chinese market that any expansions from the smaller tier 2 and 3 suppliers could be delayed into next year. For example, Yahua Lithium’s new 20,000 plant is still not near commercial production despite its initial Q1 2019 target.
Despite this there is evidence that some of the new spodumene feedstock has begun to be sold on to smaller-scale converters, as the handful of Chinese majors who have controlled spodumene production look to utilise excess feedstock. This trend could continue in H2 2019 as Ganfeng and General Lithium are both operating at close to capacity and have a strong supply of feedstock from offtake agreements, meaning suppliers may offer unallocated material to other producers.
MARKET IN OVERSUPPLY?
Towards the end of the quarter there were signs of excess spodumene feedstock, as growing Australian exports and insufficient conversion capacity led to major quantities being stockpiled. This oversupply culminated in Galaxy Resources announcing in a press release on 26 June that having completed two shipments totalling 30,000 dry metric tonnes (dmt), its third shipment of 15,000 dmt would be delayed from the end of Q2 to part of its July shipment schedule.
Only a week earlier Pilbara Minerals also took action to avert spodumene oversupply as they announced that having had discussions with Ganfeng Lithium and General Lithium the company would moderate production from the Pilgangoora mine until the end of July to allow processors time to ramp-up conversion capacity.
There are concerns of lithium oversupply in the short-term. But looking to the medium and long-term a deficit is more of a concern to the industry’s stakeholders as producers continue to secure supply.
A busy quarter for Ganfeng saw them take a stake in and agree an offtake with AIM-listed Bacanora Lithium. The deal, pencilled in May and completed at the end of June, saw Ganfeng take a 30% share in Bacanora.
The offtake agreement will see 50% of stage one production and 75% of stage two production going to Ganfeng from the company’s Sonora Lithium Project in Mexico. Benchmark doesn’t expect the project to bring significant volumes online until 2022 but this fits into Ganfeng’s forward-looking strategy to secure long-term supply.
Looking south, Ganfeng made a further investment into Lithium Americas and increased its investment by US$160 million, forming a 50/50 venture between the two companies. The Caucharí-Olaroz project in Argentina initially has plans for 25,000 tpa of carbonate production, but the recent announcement saw the two parties increase this to 40,000 tpa.
Long-term supply concerns for downstream consumers were also were evident in the Chinese-based cathode producer Ningbo Shanshan’s move to take an 11.8% in Australia’s Altura Mining, which is looking to produce 220,000 tpa of spodumene concentrate.
More spodumene investment came from Japanese trading house Mitsui, with US$30 million of funding for the capital expenditures and construction of Sigma’s commercial production plant at its Grota do Cirilo lithium project in Brazil. The deal sees Mitsui take 55,000 tpa of spodumene concentrate for six years, with further offtake rights allowing Mitsui to purchase another 25,000 tpa from Sigma over the same period.
It’s notable that the developments in the quarter have largely come from non-brine sources as production from the lithium triangle has been surpassed by hard rock resources. Within the lithium triangle Argentina is showing signs that new producers and resources are making progress. But lead times and regulatory issues related to South American production means spodumene production now leads what has been for a generation the lowest-cost source of production.
WHAT IS HAPPENING TO PRICES?
Lithium prices followed a downward trajectory in Q2 2019. Lithium carbonate and hydroxide prices have fallen throughout the quarter, with Benchmark’s Lithium Carbonate Index down -7.7% year-to-date and Benchmark’s Lithium Hydroxide Index down -11.9% year-to-date.
The premium that lithium hydroxide was enjoying over lithium carbonate continued to tighten throughout the quarter as pricing converged on Chinese levels. As price contracts are renegotiated we expect this premium to continue narrowing as consumer push for reductions in their H2 contracts.
Despite strong lithium chemical production numbers, the lack of lithium hydroxide supply qualified for battery grade has limited the price response to excess supply over the quarter.
At a feedstock level spodumene prices are down -29.71% this year. However, price falls steadied in Q2 2019 as the availability of high-quality feedstock outside of existing offtake agreements has been limited.
As with hydroxide, lithium carbonate prices are moving towards Chinese levels as consistent low-pricing in China, which has significantly increased its carbonate exports, has pulled South American prices down.