LACDF This Industry Market news Could have effects on Lithium stocks
Lithium oversupply fears grow as Chinese plan $300m plant
Australia’s budding lithium industry is facing a new existential threat, with the world’s largest hard rock lithium mine poised to announce a major increase in supply.
The Australian understands that plans to double output from the big Greeenbushes lithium mine in WA’s southwest could be announced as early as next week, following the news that China’s Tianqi Lithium will build a $300 million lithium processing plant at Kwinana, south of Perth.
The looming expansion could add a significant amount of new volume to a lithium market that analysts already fear could be heading towards oversupply.
But the pain for Australia’s junior lithium players could be a boon for the embattled WA state government, with the processing plant representing a major new investment at a time of falling activity across the state.
The development would also be a realisation of the state’s long-held aim for more “downstream” processing — or value-adding, the holy grail for resource-rich states — within its borders.
Planning documents submitted by Tianqi, which owns a 49 per cent stake in Greenbushes, detail its intentions to build a facility that will convert some 160,900 tonnes a year of spodumene concentrate from Greenbushes into just under 24,000 tonnes of lithium hydroxide for use in the rapidly growing global market for lithium ion batteries.
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The design at the Kwinana site also includes space for an eventual doubling in size.
While Tianqi could theoretically feed the new Kwinana plant with its share of the existing output out of Greenbushes, it is understood an expansion of the mine is a far more likely option.
Diverting existing supply to Greenbushes would leave Tianqi’s lithium hydroxide processing facilities in China short of feed, while Tianqi’s planning submissions spell out the company’s intentions to grow its total output.
“A strong increase in demand is forecast for lithium compounds for the production of high performance, rechargeable lithium batteries used in the electronics market,” Tianqi’s submissions say.
“As a result, Tianqi intends to increase its lithium production capacity with a new stand-alone facility, the lithium hydroxide process plant in the Kwinana Industrial Area.”
Any expansion of Greenbushes would also increase the material available to the mine’s 51 per cent owner, North America’s Albemarle Corporation. Albemarle earlier this month announced it would acquire lithium hydroxide facilities in China, with the company noting at the time that the assets could be expanded as needed to meet its growth strategy.
Greenbushes is believed to have ample extra mining capacity, with the mine currently only running for nine out of every 14 days, but any expansion of the mine would require the construction of a second processing plant on site given the existing plant is operating at capacity.
Demand for lithium is growing and is forecast to accelerate in the years ahead as consumer demand for new generation electric vehicles such as the Tesla as well as home energy storage systems like the Tesla Powerwall take off.
Dozens of junior exploration companies have moved into lithium exploration in the past year in response to investor excitement around the space.
But the increased demand has already driven a groundswell of increased production.
In WA, Galaxy Resources has restarted mining at its Mount Cattlin spodumene mine while Mineral Resources and Neometals are commissioning their new Mount Marion mine.
There have been growing concerns about the potential for oversupply in the lithium sector, given the relative abundance of lithium projects and the incentive for incumbent producers to protect their market share.
Analysts at Macquarie earlier this month warned that the boom for hard-rock lithium could be “over before it started” given the supply-side response already under way.
Notably, Macquarie’s forecasts did not include any increase in supply out of Greenbushes.
For WA, the processing at Kwinana will add significant value to the value of the spodumene out of Greenbushes, which will translate into greater revenue for the state.
Each tonne of lithium hydroxide will be worth $US14,000- $US15,000, compared with $US450 for each tonne of spodumene concentrate. About eight tonnes of concentrate is needed to produce a tonne of lithium hydroxide.
Those returns have prompted a number of Australian players to consider their own downstream lithium processing facilities, with Neometals studying the merits of a plant and MinRes flagging its interest in developing a central processing hub in the Pilbara.
WA has historically had a poor track record of downstream processing, as evidenced by the disaster of BHP Billiton’s hot briquetted iron plant near Port Hedland and Rio Tinto’s HIsmelt venture. Ironically, the site of Tianqi’s Kwinana plant is directly across the road from Rio’s now empty HIsmelt facility.
Canaccord Genuity analyst Reg Spencer is positive on the outlook for lithium but said the prospect of a supply response from incumbent producers meant he favoured companies already in production like Orocobre and Galaxy.
“The one thing we all need to be conscious about in the lithium market is the potential for the incumbents to lift production,” Mr Spencer told The Australian.
“How much they can lift production and when that comes into the market is always the question. Yes there’s a lot of potential supply capacity out there, but history has shown that very little of that actually comes on line and the bit that does is always delayed or very late.”
The new Kwinana plant is likely to employ several hundred workers during its construction and about 60 full-time staff when fully operational.
