Curation ESG
August 7, 2024
What’s happening? Albemarle, the world’s largest lithium producer, has announced that it will pause the expansion of its Kemerton plant in Australia due to weak lithium prices. The facility produces battery-grade lithium hydroxide for electric vehicles (EVs) and other products. The Tesla supplier will also idle one of its processing lines to focus on a single line, reducing the workforce by 40%. CEO Kent Masters stated that the plant’s production capacity will decrease by half to 25,000 tonnes. Albemarle had previously planned to expand the plant to four lines with a 100,000-tonne capacity. It is now halting construction of the third line, having already dropped plans for the fourth. Albemarle reported a Q2 net loss of $188m, compared to a $650m profit in Q2 last year. (CNBC)
Why does this matter? Lithium prices, a critical material for electric vehicle (EV) batteries, have slumped by approximately 80% since late 2022, and the current surplus is expected to peak in 2027 before returning to deficit by the end of the decade, according to Benchmark Mineral Intelligence. Private investment bank Berenberg noted that lithium prices are currently under $12,000 per tonne, with European demand flat alongside a weak 10% increase in the US. The bank added that prices are unlikely to recover until 2026. The downturn also complicates plans by the US and its diplomatic allies to utilise Australian battery minerals to reduce reliance on Chinese companies.
EV sluggishness – Compounding the issue is the underwhelming uptake of EVs, which is not moving as fast as projected. As a result, some automakers, most recently Porsche and General Motors, have trimmed their EV sales targets. Tariffs on Chinese EVs imposed by the EU and US are pushing up prices, further deterring potential customers in addition to challenges related to insufficient public charging infrastructure and perceived range anxiety. Furthermore, there is an oversupply of batteries that will likely outstrip demand until the end of the decade.
Global lithium retreat – Some smaller producers have already shaved their output. For example, Australia’s Core Lithium has suspended operations at its Finniss project, while China’s Zhicun Lithium Group has put two of its carbonate units in maintenance. While US-based Albermarle is the first of the top lithium players to curtail production, others, such as Pilbara Minerals, Mineral Resources and Arcadium Lithium could be set to follow. Meanwhile, China’s Ganfeng Lithium Group and Tianqi Lithium have reported preliminary net losses in H1.
Government response – In response to Albemarle’s announcement, Australia’s Resources Minister Madeleine King said the government would consider bringing forward tax incentives worth AUD8.8m ($5.7m) for processing and refining critical minerals, which had been set to start in 2027. King noted that the move may not have helped Albemarle but added that she intends to speak with other mining companies operating in Australia, the world’s largest lithium producer and exporter, to encourage them to retain their investment plans to enable more domestic processing of the metal. King also said that policy support is needed to “help address distortions in global markets.”
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