Slow growth in Chinese EVs hits lithium demand

Australian producers are conserving cash and reviewing projects

Slow growth in Chinese EVs hits lithium demand
Spodumene is the raw material from which lithium is extracted

Australian lithium producer Pilbara Minerals is “unlikely” to pay shareholders a dividend for the financial half-year ended December as it looks to preserve its balance sheet in a tough price environment. 

The firm recorded a 46pc drop in revenues to AU$264mn ($174mn) in the last quarter due to volatile prices for lithium — a key element used in EV battery manufacture.  

“We believe the group's cash balance and overall balance sheet position is a competitive advantage relative to many of its peers in the lithium sector. This is particularly the case in an environment of lower spodumene prices and potentially more difficult capital raising conditions,” says Luke Bortoli, CFO of Pilbara Minerals.

Prices for spodumene — the raw ore from which lithium is extracted — fell from an average realised price of $4,993/t in FY H1'23 to $1,645/t in FY H1'24, according to the firm. 

The price of battery grade lithium carbonate, which is refined from spodumene, has fallen from over $81,000/t in December 2022 to $13,200/t at the end of last year on slowing growth of demand for EVs in China, according to price reporting agency Benchmark Mineral Intelligence.

Despite the low prices Pilbara Minerals says it will continue to maintain production at current levels as it still has positive operating margins.

Elsewhere in Australia lithium developer Liontown Resources commenced a review of the planned expansion of its Kathleen Valley project to preserve capital in light of the current lithium price environment. 

Chinese demand factors

A phase-out of subsidies for Chinese EVs at the end of 2022 has hindered the pace of growth in the market. 

In a note published at the end of last year, bank Goldman Sachs says it expects the lithium market to be in a 202,000t surplus this year — representing 17pc of global demand.

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“We continue to expect prices to trade deeply into the cost curve to balance the market,” the note said. 

The re-balancing of the EV supply chain in China has been a key contributor towards the fall in battery metals demand, according to Goldman. 

“The accelerated supply expansion and battery capex surge from past 18 months has pushed China’s battery balance into a surplus, which in turn has weighed on restocking demand for lithium,” the note continues. 

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