TOL - 26th Apr, 2023
5 lithium price insights from Allkem’s first quarter results
Chinese lithium prices have been spiralling lower. But what's it really like out there?
Lithium prices have spiralled downward since November 2022 but that doesn’t paint the full picture for miners. That’s because they generate earnings both from sales to the spot markets and from existing offtake arrangements.
Allkem (ASX: AKE) on Thursday became one of the first ASX-listed lithium majors to post its March quarter report, which provides critical insights into what it's really like out there.
These are the five areas I found most interesting.
#1 March quarter: Prices were intact
Both spodumene and lithium carbonate saw increased average sale prices in the March quarter versus the December quarter:
- Lithium carbonate: US$53,175 a tonne, up from US$53,013
- Spodumene: US$5,702 a tonne, up from US$5,284
Of note, Allkem produces a lower-grade spodumene product (5.2%) from its Mt Cattlin Project in WA. The average price corresponds to approximately US$6,500 a tonne when converted to benchmark grades of 6%.
Allkem said lithium carbonate prices were “slightly up from the December quarter” and in line with guidance. Spodumene was up 8% quarter-on-quarter and above its prior guidance.
#2 Margins: Another record quarter
Higher average selling prices helped margins expand even further:
- Olaroz (lithium carbonate) posted a record gross cash margin of 91% or US$47,814 a tonne, up from 90% in the previous quarter
- Mt Cattlin (spodumene) produced gross cash margins of 81%, up from 72% in the previous quarter
#3 Looking ahead: Prices set to ease
Unsurprisingly, Allkem expected June quarter prices to ease:
- According to management: “The weighted average price for third party sales of lithium carbonate products in Q4 FY23 is expected to be approximately US$42,000 a tonne.”
- “[Spodumene] pricing in the June quarter is expected to be approximately US$5,000 per dry metric tonne.”
This would reflect a quarter-on-quarter decline of 21% for lithium carbonate and a 23% fall for spodumene.
Allkem management's view aligns with that outlined just last month by David Franklyn, who heads up the Argonaut Natural Resources Fund: “We expect further weakness in the spodumene price in the medium term, as it pulls back from extraordinarily high levels achieved in 2022,” Franklyn said.
#4 Withholding sales
Allkem noted how production was much higher than sales, due to:
- Deferral of volumes allocated to its Naraha hydroxide facility
- Significantly higher than expected production from Olaroz Stage 1
- A decision to withhold spot sales into the Chinese market.
The third point is arguably the most interesting, as management indicated current Chinese market prices do not “reflect underlying supply and demand fundamentals.”
The company has decided to hold off on some sales while waiting for higher prices. But at the same time, Chinese lithium prices are showing no signs of stabilising. As of Monday, 17 April, prices fell to 187,000 yuan a tonne, down 70% from November 2022 highs. Prices have been falling for 55 consecutive days.
Something’s got to give.
#5 Lithium market commentary
“The first quarter of the calendar year is historically the slowest period for lithium consumption due to adjustments to EV subsidy policy, seasonal destocking, scheduled maintenance outages and the Lunar New Year break in the world’s largest market, China,” said Allkem.
“During the quarter, demand continued to grow steadily in volume, albeit at a lower rate than expected and slower than what many had become accustomed to over the last few quarters.”
Management reiterated that fundamentals underpinning lithium demand “remain very strong” and EV sales continued to grow in the March quarter. Chinese EV sales experienced a slow start in January but the overall March quarter was strong, up 25% year-on-year.
This article was originally published for Market Index.
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Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights that matter most to investors.
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Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights...
Expertise
Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights...
Expertise
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