An electric car being charged on a Paris street. Lithium is used in the batteries. Picture: REUTERS
An electric car being charged on a Paris street. Lithium is used in the batteries. Picture: REUTERS

Melbourne — Having raced to ramp up lithium production over the past five years to exploit surging prices, Australian producers are now scrambling to cut supplies as prices plummet on falling demand in the world’s top electric vehicle market.

Miners say they see little respite from the difficult market conditions through to December 2019 due to lower demand for the battery component after Beijing altered its subsidies to electric vehicle makers and a rise in global trade tensions.

The latest round of quarterly reports last week showed a pattern of lower sales as battery producers wound back demand, while the sales that were made came at lower prices.

Alita Resources called in administrators last week after a failed restructure attempt, Pilbara Minerals cut its third-quarter sales forecast and Galaxy Resources’ first-half sales halved from a year ago.

‘Very bad sentiment’

“The sentiment is very bad. If there is no change in market sentiment in regard to the trade war, it’s hard to see a big recovery in China's car market,” said analyst Helen Lau of Argonaut Securities.

“So on the supply side, it is very, very difficult. There must be some consolidation there going forward among lithium miners.”

Australia accounts for about half of the world's lithium from hard rock lithium concentrate, called spodumene, which is shipped mainly to China for processing.

China’s biggest lithium producer, Ganfeng Lithium, a large buyer of spodumene, posted a 59% plunge in first-half profit last week, and said it expected prices of Australian hard rock lithium to fall further.

Shares in Australian miners such as Mineral Resources, Galaxy Resources, Altura Mining, Lithium Australia, and Pilbara are down between 15% and 68% in 2019 compared with a 20% fall in the price of spodumene.

“The outlook in regards to the market remains very soft,” Galaxy Resources CEO Simon Hay told an earnings call last week, pointing to rising stockpiles.

Converters of hard rock lithium into battery chemicals in China were holding about four months’ worth of stocks, or double the usual levels, he said.

This has slowed sales from overseas suppliers. Galaxy sold 44,630 tonnes in the first half of 2019, against more than 90,000 tonnes a year earlier, at an average price of $584, down from $940 a year ago.

Pilbara Minerals has lowered its capital expenditure in a bid to cut costs and scaled back new development projects.

Altura Mining was put on a temporary trading halt on Friday after falling as much as 30% over two days, but said it was experiencing strong sales and pointed to the general market weakness.

Further out, however, broker Canaccord said it has cut back its forecasts for annual spodumene concentrate production by about 30% to 2025.

“Challenging concentrate market conditions have driven numerous operators to reassess production plans,” it said.