Tianqi Lithium Faces Potential $1.2 Billion Loss

In a shocking development on the evening of January 23, Tianqi Lithium, a leading player in the lithium industry, announced its financial projections for 2024, predicting a staggering net loss for shareholdersThis announcement is a reflection of the tumultuous rollercoaster that the lithium market has experienced in recent years, showcasing the volatile nature of a resource that has become synonymous with modern technology, particularly in the realm of electric vehicles (EVs).

Tianqi Lithium disclosed that it anticipates a net loss ranging from 82 billion to 71 billion yuan for the fiscal year of 2024, significantly contrasting with the net profit of 72.97 billion yuan reported in the previous yearWhen accounting for exceptional items, the adjusted net loss remains within the same range, further emphasizing the bleak outlook for this prominent lithium producer.

A retrospective analysis reveals that the root causes of this volatile lithium market can be traced back to a significant mismatch between supply and demand during various cycles

Advertisements

Prior to 2015, lithium prices hovered around 40,000 yuan per tonHowever, with the rapid adoption of electric vehicles, demand for lithium surged, propelling prices to unprecedented levels and subsequently prompting major lithium producers, such as Pilbara and Altura, to increase production capacity.

The tide began to turn in 2018 when an influx of supply sent lithium prices plummeting back to levels reminiscent of a decade earlierThis drop forced many high-cost lithium mines to cease operationsNotable casualties included the Bald Hill mine, which went bankrupt, and Wodgina, acquired by Albemarle and later shut down for maintenanceAltura also succumbed to a similar fate and was taken over by Pilbara.

Concurrently, the electric vehicle industry was experiencing explosive growth, particularly in China, despite the constantly shrinking supply of lithium

Advertisements

For instance, in 2020, the output volume of cathode materials in China was merely 500,000 tonsThis figure skyrocketed to 1.11 million tons in 2021, with capacity peaking at 1.7 million tons.

However, there was a significant disconnect between the expansion cycles of upstream mining and midstream manufacturingAccording to statistics provided by the International Energy Agency, the timeline from discovering a spodumene mine in Australia to actual production is approximately four years, whereas brine resources in South America take even longer, around seven yearsConversely, the capacity-building cycle for cathode materials is remarkably brief, usually around one year.

As the price of lithium carbonate surged more than 430% in 2021, the market dynamics spiraled further out of control in 2022. Prices for lithium carbonate skyrocketed from 280,000 yuan per ton at the beginning of the year to nearly 600,000 yuan, thrusting the market into an irrational frenzy driven not solely by supply-demand imbalances.

In a functioning market, the natural development of industries typically includes mechanisms that self-regulate; rising prices upstream would ordinarily dampen consumer demand, creating a balancing effect on upstream prices

Advertisements

For instance, an electric vehicle requires approximately 30-50 kg of lithium carbonate, translating into a cost increase exceeding 10,000 yuan per vehicle, not accounting for surges in cobalt and nickel prices.

Yet, in the race to dominate the expanding EV market, companies in the midstream sector absorbed these escalating costs instead of passing them on to consumersNotably, battery manufacturers bore the brunt of increased raw material prices in 2021, followed by automobile manufacturers in 2022, effectively maintaining high demand without counteracting upward pressure on upstream prices.

Over the past few years, the narrative surrounding electric vehicles, often framed as a miraculous technological leap, has led to lithium being dubbed the "white oil." However, a fundamental truth about lithium is often overlooked: the world is not facing a shortage of this essential resource.

Lithium is relatively abundant in nature, ranked 27th in terms of natural abundance, with approximately 0.0065% found in the Earth's crust

• Tianqi Lithium Faces Potential $1.2 Billion Loss
• Gold Prices Surge to Record Highs in January
• Dual Strategies to Bolster Cross-Border E-Commerce
• France Faces Persistent Economic Risks
• Goldman Sachs Embraces Open-Source AI

Reports from the United States Geological Survey (USGS) indicate that, due to ongoing exploration efforts, the global reserves of lithium have been continuously revised upward, totaling 98 million tons in 2022, with proven reserves now reaching up to 26 million tons—significantly up from 22 million tons reported in 2021. Given the current consumption levels, this amount could meet global demands for well over 150 years.

The escalating lithium prices have ignited a fervent desire among upstream producers to expand capacityStarting in 2022, numerous lithium miners surged ahead with significant expansionsTianqi Lithium’s subsidiary, Talison Lithium, operates the Greenbushes mine, which boasts unparalleled reserves and quality in the worldLast year, the newly constructed tailings reprocessing plant at Greenbushes was completed, adding 280,000 tons of lithium concentrate capacity, raising total capacity to 1.62 million tons

By the fourth quarter of 2022, the lithium concentrate production from the Greenbushes project had already reached 379,000 tons, reflecting a 46.3% year-on-year increase.

Meanwhile, the Pilgangoora project currently houses one of the largest hard rock lithium-tantalum deposits globally, with factory expansions adding 100,000 tons of annual capacityOnce completed, the Pilgangoora project’s total lithium concentrate output is expected to rise to between 640,000 and 680,000 tons per yearFurthermore, the company has announced an investment decision regarding the P1000 project, with anticipated production capacity expected to reach 1 million tons per year by the end of 2023 or early 2024.

In South America, lithium brine projects are also aggressively ramping up production, with total capacity across major projects reaching 880,000 tons of lithium carbonate equivalent (LCE)—surpassing the combined output for 2022. Many of these projects are set to commence operations by 2025-2026. Notably, Chinese firms like Ganfeng Lithium, Zijin Mining, and Tibet Summit have already initiated operations in several projects across South America.

According to CITIC Futures statistics, 2023 is poised to be a year of large-scale production and capacity release for lithium projects, with global lithium resources projected to increase by 45.8%, 61.5%, 34.2%, and 13.0% from 2023 through 2026, respectively

The corresponding effective production volumes are expected to reach 1.11 million tons LCE, 1.8 million tons LCE, 2.41 million tons LCE, and 2.72 million tons LCE, reflecting a substantial multiplication of output compared to just 540,000 tons LCE in 2021.

Additionally, the World Economic Forum predicts that by 2025, global demand for lithium will reach 1.5 million tons of lithium carbonate equivalent, indicating that in the coming two years, the market could face a significant surplus, fundamentally locking in the potential for a drastic price rebound.

As we continue into 2024, the prices for lithium carbonate show no signs of stabilizationThe situation has resulted in an accelerated decline in the performance of lithium companies, with revenues experiencing dramatic decreasesNotably, even industry leaders struggle to escape the harsh realities of a cyclical downturn.

The price trajectory for battery-grade lithium carbonate is striking: rising from less than 80,000 yuan per ton in 2020 to nearly 600,000 yuan per ton in 2022, before plummeting back down to around 80,000 yuan per ton today