Viewpoint: The lithium dominoes begin to fall

The lithium market has experienced a turgid 12 months, during which demand failed to keep pace with supply, weighing on prices, and the new year has already seen its first major project suspension, with market participants warning that more are to come.

Australian firm Core Lithium — one of the more recent producers to enter the market — confirmed last week that it is suspending operations at its Grants mine in Darwin, in the Northern Territory, citing an 85pc fall in spodumene concentrate prices in the past year. The company will keep processing ore stockpiled at its concentrator in Finniss, which totalled around 280,000t as of 31 December.

"It won't be the last," said one lithium buyer, noting that several suppliers are feeling the squeeze in this lower price environment.Weaker spodumene prices — which opened January at $900-1,100/t cif China, down by 83pc from a year earlier — have put mounting pressure on new lithium producers, which pulled in high levels of investment over the past two years while prices were high and financing was relatively cheap. Many are now reaching production at a difficult time, with global lithium demand flagging and China ramping up its lepidolite production to reduce reliance on imports from South America and Australia.

In 2023, "we saw China grow its internal lepidolite production and move rapidly to access more raw material from Africa", Global Lithium Podcast host and analyst Joe Lowry said.Non-Chinese demand for Australian spodumene has a strong future but will take some years to grow, Lowry noted. "While China still receives most of the spodumene that Western Australia produces, over the remainder of the decade North America and the EU will begin competing for that material as cathode capacity is built in those jurisdictions and certain Australian spodumene producers move downstream."

New opportunities for established miners

A wave of closures or temporary stoppages could open up new opportunities for established and integrated lithium mining firms. South American brine producers and integrated rock miners in Australia, which sit at the lower end of the cost curve, are better insulated from lower prices than newer spodumene miners.

Last year saw a surge in mergers and acquisitions and attempted takeovers of smaller lithium projects by larger, more established players. Market participants expect this to continue as times get tough.

"There's a big opportunity coming up," a trader said. "These projects are going to need financing, it's a good time to buy into the lithium market."

The final quarter of 2023 saw steep declines in the share prices of multiple spodumene companies, including Core Lithium, down by 38pc, Canada's Sayona mining, which fell by 24pc, US firm Piedmont Lithium, down by 25pc, Brazil's Sigma lithium, a 5pc decline, and Australia's Liontown resources, which fell by 44pc, with the latter subject to a takeover bid by established player Albermarle last year.

More established producers are faring better in the stock market, with SQM, Albemarle, Tianqi Lithium, Livent and Allkem all increasing their share prices by double digits over the same period. Market participants are taking this as a sign of the entrenched advantage held by these larger scale, lower cost producers and expect them to snap up some smaller mines. Those that survive will be well placed for later in the current decade, for which the lithium demand outlook remains strong.Argus forecasts that global lithium demand will rise to 2.6mn t of lithium carbonate equivalent by 2030, from around 936,000t in 2023. Global lithium capacity is expected to grow to just 2.05mn t/yr by 2030, leaving a large deficit in the market, driven largely by the rollout of lithium-ion batteries in electric vehicles (EVs).