Lithium

5 lithium price insights from Allkem’s first quarter results

Thu 20 Apr 23, 11:15am (AEST)
Lithium salts in Argentina
Source: iStock

Key Points

  • Allkem's lithium sales prices increased in March quarter for both spodumene and lithium carbonate
  • Average lithium sale prices are forecast to fall ~20% in the June quarter
  • Allkem has opted to withhold some sales until prices improve and more accurately reflect current supply and demand fundamentals

Lithium prices have spiralled downward since November 2022 but that doesn’t paint the full picture for miners. That’s because they generate earnings both from sales to the spot markets and from existing offtake arrangements.

Allkem (ASX: AKE) is one of the first ASX-listed lithium majors to post its March quarter report, which will provide key insights on what it's really like out there. 

These are the five areas I found most interesting. 

#1 March quarter: Prices were intact

Both spodumene and lithium carbonate saw increased average sale prices in the March quarter versus the December quarter: 

  • Lithium carbonate: US$53,175 a tonne, up from US$53,013

  • Spodumene: US$5,702 a tonne, up from US$5,284

Of note, Allkem produces a lower grade spodumene product (5.2%) from its Mt Cattlin Project in WA. The average price corresponds to approximately US$6,500 a tonne when converted to benchmark grades of 6%. 

Allkem said lithium carbonate prices were “slightly up from the December quarter” and in-line with guidance. Spodumene was up 8% quarter-on-quarter and above its prior guidance. 

#2 Margins: Another record quarter

Higher average selling prices helped margins expand even further:

  • Olaroz (lithium carbonate) posted a record gross cash margin of 91% or US$47,814 a tonne, up from 90% in the previous quarter

  • Mt Cattlin (spodumene) produced gross cash margins of 81%, up from 72% in the previous quarter

#3 Looking ahead: Prices set to ease

Unsurprisingly, Allkem expected June quarter prices to ease:

  • According to management: “The weighted average price for third party sales of lithium carbonate products in Q4 FY23 is expected to be approximately US$42,000 a tonne.”

  • “[Spodumene] pricing in the June quarter is expected to be approximately US$5,000/dmt.”

This would reflect a quarter-on-quarter decline of 21% for lithium carbonate and a 23% fall for spodumene. 

#4 Withholding sales

Allkem noted how production was much higher than sales, due to:

  • Deferral of volumes allocated to its Naraha hydroxide facility

  • Significantly higher than expected production from Olaroz Stage 1

  • A decision to withhold spot sales into the Chinese market.

The third point is arguably the most interesting, as management indicated current Chinese market prices do not “reflect underlying supply and demand fundamentals.”

The company has decided to hold off on some sales while waiting for higher prices. But at the same time, Chinese lithium prices are showing no signs of stabilising. As of Monday, 17 April, prices fell to 187,000 yuan a tonne, down 70% from November 2022 highs. Prices have been falling for 55 consecutive days.

Something’s got to give. 

#5 Lithium market commentary 

“The first quarter of the calendar year is historically the slowest period of the year for lithium consumption due to adjustments to EV subsidy policy, seasonal destocking, scheduled maintenance outages and the Lunar New Year break in the world’s largest market, China,” said Allkem. 

“During the quarter, demand continued to grow steadily in volume, albeit at a lower rate than expected and slower than what many had become accustomed to over the last few quarters.”

Management reiterated that fundamentals underpinning lithium demand “remain very strong” and EV sales continued to grow in the March quarter. Chinese EV sales experienced a slow start in January but the overall March quarter was strong, up 25% year-on-year. 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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