China lithium: falling costs don’t imply falling margins

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Lithium costs have slumped. So too have the shares of Chinese language lithium firms. However there isn’t any motive for panic promoting. Electrical autos stay in sturdy demand. So do the batteries wanted to energy them.

Costs of lithium carbonate in China have fallen to about $22,900 per tonne, about half their peak in June. That compares with costs hitting a file excessive of virtually $83,600 per tonne in November.

Weaker than anticipated EV gross sales progress in China in January was the preliminary set off. Traders feared that demand for the steel had peaked. Analysts have forecast the worldwide market deficit of lithium will quickly begin to shrink.

Shares of the biggest native specialist Ganfeng Lithium and peer Tianqi Lithium have plunged about 40 per cent previously yr. Tianqi trades at an enterprise worth of simply 2 occasions ahead gross sales, lower than half the degrees of a yr in the past.

But Ganfeng’s working margins are little modified from 2022 when lithium costs hit file highs. For Tianqi, they’ve elevated by nearly 30 share factors. The enterprise of mining and producing lithium is profitable in China, which controls two-thirds of world processing capability.

Extraction and processing of uncooked supplies has lengthy been a better margin enterprise than battery manufacturing. Native demand is regular.

EV gross sales doubled in China final yr. Different nations are beginning to catch up. World EV gross sales rose 49 per cent within the first half of the yr, based on Canalys information. China’s lithium demand from the EV sector alone is anticipated to develop at an annual charge of 20 per cent over the following decade, far outpacing provide.

Contemporary discoveries of huge lithium deposits and new mine provides could tip markets right into a surplus. China’s EV demand progress is anticipated to sluggish this yr.

However in the long run, world demand for lithium for batteries and power storage programs ought to put a ground beneath costs. Till margins begin falling at Chinese language lithium firms, there isn’t any rush to promote.