The lithium price crash over the past year is leading to a slew of profit warnings and project halts from the world's biggest miners of the battery metal.
After warnings of project reviews and moves to preserve cash from U.S. and Australian lithium mining firms, some of China's biggest miners also warned this week of a plunge in profits and potential asset write-downs.
As prices of lithium plummeted by more than 80% between January 2023 and January 2024, dragged down by rising supply and weakening growth in EV uptake and demand from battery producers, lithium miners from America to China are struggling to keep profitability levels and warn the near future could be more uncertain and volatile in terms of sales prices and net incomes.
The long-term prospects of the global EV market continue to be solid. Still, the current lithium oversupply is expected to persist in the short and medium terms until some point at the end of this decade, analysts say.
Faced with supply outstripping demand, lithium producers are now scrambling for options and warning the market of much lower profits and asset impairment tests. Related: Saudi Arabia's Decision to Halt Oil Capacity Expansion Was Mulled for Months
In China, Tianqi Lithium Corporation issued a profit warning on Tuesday, saying that the net profit attributable to company shareholders would be 62.9% to 72.56% lower for 2023 than the net profit for the same period of 2022.
"Affected by the volatility in the lithium chemical product market, the Company witnessed a decline in the sales price of its lithium chemical products compared to the previous year, and the gross profit of the lithium chemical products decreased," Tianqi Lithium said in a filing to the Hong Kong Stock Exchange.
Taking into account the market conditions, the company's operating performance, and other factors, Tianqi Lithium will perform an impairment test on assets displaying indications of impairment at the date of the 2023 balance sheet. According to preliminary estimates, it is anticipated that provisions for impairment losses on assets would rise for the 2023 reporting period, compared with the previous year, it said.
Another Chinese lithium miner, Ganfeng Lithium Group, also warned of a profit slump for 2023, expecting its net income to have plunged by between 70% and 80% last year compared to 2022.
The profit warnings from two of China's top lithium miners follow similar financial and operating flags raised by U.S. and Australian miners in the past weeks.
Albemarle, one of the world's top lithium producers, said earlier in January it was re-phasing larger projects, reducing capital expenditures, deferring some spending, and planning job cuts, to "optimize its cost structure in response to changing end-market conditions, particularly in the lithium value chain."
"The company is also pursuing actions to optimize its cost structure, reducing costs by approximately $95 million annually, primarily related to sales, general, and administrative expenses, including a reduction in headcount and lower spending on contracted services," Albemarle said.
Pure-play lithium company Pilbara Minerals warned that it is "unlikely that a dividend will be paid for the half-year ended 31 December 2023," as the company looks to further preserve its balance sheet position.
Liontown Resources has initiated a review of the planned expansion and associated ramp-up of Kathleen Valley to preserve capital and reduce the near-term funding requirements of the project.
As a result of the plunge in lithium prices over the past year, consumers are looking to restructure the basis for long-term contracts to a forward-month price-instead of a price based on a previous month's average-to reduce exposure to volatility, price reporting agency Fastmarkets said this week.
"It's a logical move from a converter perspective as it reduces exposure to price risk," a source at a chemical producer told Fastmarkets.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More