Against the Grain: Lithium’s down but these industry captains are playing the long game

Stockheads09-06

Lithium prices have hit levels where few mines are making money But the long-term demand picture for the battery metal remains strong, with EV sales growth still sitting at around 20% this year Large ...

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But the long-term demand picture for the battery metal remains strong, with EV sales growth still sitting at around 20% this year. Large and influential investors continue to hold stakes in lithium explorers and miners, with an eye to a future where demand for the commodity will grow strongly","collect":0,"end_time":0,"defaultTopTitle":"stockhead.com.au","property":[],"viewcount":null,"language":"en","relate_stocks":{"POW":"Powered Brands"},"translate_title":"逆势而上：锂价下跌，但这些行业领袖正在打持久战","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"POW":1},"content_text":"Lithium prices have hit levels where few mines are making money\nBut the long-term demand picture for the battery metal remains strong, with EV sales growth still sitting at around 20% this year\nLarge and influential investors continue to hold stakes in lithium explorers and miners, with an eye to a future where demand for the commodity will grow strongly\nLithium has cooled big time yet some of the resources industry’s most prominent investors – including Tolga Kumova and Gina Rinehart – continue to back companies in the sector.It’s a sign investors with their fingers on the pulse are taking a long-term view in the critical mineral despite slowing demand growth.The once niche and tiny lithium market is evolving and adjusting to the unprecedented rollout of electric vehicles across the globe against the backdrop of falling lithium prices.VP Capital co-founder John So says EV demand in the two main markets, China and Europe, has fallen below expectations over the past 12 months with sales growth slowing from highs of 40% year-on-year in early 2023 to a still substantial but lower year-on-year growth of ~20%.“This is partly driven by the longer-than-expected cost of living pressures in Europe and what appears to be a slower recovery in the Chinese economy,” he told Stockhead.“This has also coincided with a strong increase in global lithium supply – for example in Australia alone, we have seen continued plans by Pilbara Minerals to ramp up its production and the likes of Liontown Resources commissioning its Kathleen Valley project.“Stockpiles are increasing, and it will take some time for the market to digest the inventory.”Any hope for a lithium bull market in FY25? So reckons lithium prices have found a bottom given commodity prices are trading near the marginal cost of production, with many analyses suggesting most Australian spodumene producers are now unprofitable at prices below US$1,000/t.“For example, we have seen Core Lithium, which kicked off mining in late 2022, put its operations into suspension,” he said.“Similarly, for companies with more processing capabilities, lithium carbonate prices at close to US$10,000/t is most likely below the incentive price for any additional capacity.“For these reasons we have seen mines such as Greenbushes – one of the last few remaining profitable operations of scale in Australia – cutting output and stockpiling production.”Notably, Arcadium Lithium (ASX:LTM) yesterday revealed its Mt Cattlin mine in WA would transition to care and maintenance in 2025.So said in time, as electrification and EV demand continue to accelerate at compound double digit percentages, higher commodity prices will be needed to ensure underinvestment and supply catches up to demand.“Lithium has become a more mature market compared to a few years ago – we are less likely to see short-term, six-month boom-bust scenarios like in the past,” he said.“This cycle will likely have at least another 18 months to play out.“There will be green shoots in the second half of FY25 in terms of lithium commodity prices finding firmer footing, but a sustained upward cycle will likely be at least 18 months away, taking us to FY26.“We are unlikely to retest the dizzying heights of US$5,000/t plus spodumene prices or US$30,000/t plus lithium carbonate prices any time soon.”Bigger players positioning for the bounce Although lithium prices have fallen nearly 70% over the past year, M&A deals are continuing to take place with the most recent being Pilbara Minerals’ (ASX:PLS) counter-cyclical move to acquire Brazilian lithium developer Latin Resources (ASX:LRS).LRS soared some 50% in early August after hard rock lithium miner PLS stunned the market with its acquisition of LRS and the 77Mt Salinas lithium project in Brazil for $560m in PLS shares.The Salinas deposit adds 20% to PLS’ resource base and a further ~30% of production if Salinas fully ramps up its stated nameplate capacity of 499,000tpa concentrate at 5.2% Li2O over an initial mine life of 11 years.“Companies are positioning themselves for medium-term access to the lithium market,” So said.“At double digit compound EV growth, by the end of the decade it will not be surprising if EV demand has more than doubled.“That said, if you look at what some of the other majors have done such as BHP, they have rightly shied away from any significant acquisitions in this space and have instead opted to chase copper.“That signifies a degree of caution and at least discipline during the frenzied high point of the lithium commodity price cycle.”A golden rule in the commodity price market is to find a bottom once the commodity price hits marginal cost of production.“Lithium prices, certainly for hard rock, [are] well past that point and it would not be surprising that most miners are not profitable,” So said.“Underinvestment in the sector will eventually lead to a more balanced market, if not a shortage, but we find commodity prices – and as a result share prices – tend to react in advance,” he said.“At an attractive enough price, lithium equities are increasingly looking like an option play with no expiry on the sector.”The long game Other market commentators, such as BDO’s head of global natural resources Sherif Andrawes, hold the view that even with the short-term prices coming down and a lot of volatility in the lithium price, the long-term demand for lithium will be there.“Even in declining spot prices, explorers continue to be a destination for capital as investors are taking a long-term view of future demand,” he said.Lithium stocks capturing hearts… and walletsBut big-pocketed investors with long-term views on the outlook for lithium continue to back companies in the space.Resources industry entrepreneur and corporate finance specialist Tolga Kumova is one with interests in the battery metal, having kept a holding in Pilbara lithium play Raiden Resources (ASX:RDN) since nabbing a stake in the company back in 2020.RDN quickly rose to the top of an average lithium market in 2023 as it uncovered the high-grade lithium (2.73% Li2O) and rubidium (0.55% Rb) within its tenements at the Andover South project.The company’s ground neighbours the Andover discovery, now owned by Gina Rinehart and SQM, the world’s second biggest lithium producer.Reconnaissance efforts carried out last year identified outcropping pegmatites of up to 50m wide across a ~3.5km long, 600m-wide pegmatite field.Subsequent mapping and sampling later defined a high-grade Li2O trend within the central part of the pegmatite field that extends over 1.5km along strike.RDN intends to begin drilling as soon as the heritage surveys are completed, and the Program of Work (POW) has been approved by the Department of Mines.Iron ore billionaire Gina Rinehart owns a 19.9% stake in Liontown Resources (ASX:LTR) via her privately owned mining business, Hancock Prospecting, making her its largest shareholder on the stocks register.The move last year scared away the world’s biggest lithium producer, Albermarle, from going through with its $6.6b deal to buy LTR and its hard rock lithium deposit in Kathleen Valley.Kathleen Valley produced first spodumene at the end of July following progressive commissioning of the process plant and end-to-end operation of the project’s value chain.The project has now produced more than 10,000 tonnes of concentrate since beginning operations with a weighted average concentrate grade of 5.2% Li2O.LTR says it is on schedule to achieve a major milestone with first shipment of concentrate from Kathleen Valley sometime this month.At Stockhead we tell it like it is. While Raiden Resources is a Stockhead advertiser, it did not sponsor this article.  Explore More   Investor Guide: Battery Metals FY2023","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2465508599"}