The Decline in Lithium Carbonate Prices Causes Lithium Mining Companies Annual Reports to Eclipsed

Shengxin Lithium Energy’s Net Profit Dropped by 87.35%, Ganfeng Lithium by 87.35%, Tianqi Lithium by 69.75%, and Salt Lake Potash by 49.17%...

A review of the 2023 annual reports recently disclosed by lithium mining companies shows that "declining profitability" has become a frequent term.

“The production and operation are fine; the main point is the decline sharply in lithium prices,” said a representative from an A-share lithium mining company to a Shanghai Securities Journal reporter that over the past two years, lithium prices had increased substantially, boosting the performance of industry companies. Now ,with the lithium prices have returned to rationality, a decline in performance is inevitable.

Despite the possible loss of price benefits, industry insiders believe that the demand for lithium salt products is still exsit against the backdrop of rapid development in the new energy vehicle and energy storage industry .

Profitability Declines, but Cash Flow Remains Relatively Stable

From the performance indicators, the revenue and net profit of lithium mining companies both declined in 2023.

Take Ganfeng Lithium, a giant in the upstream lithium battery industry, for example. The company’s recently disclosed 2023 annual report shows, it achieved a revenue of 32.972 billion yuan in 2023, down 21.16% year-on-year; net profit reached 4.947 billion yuan, down 75.87% year-on-year. The drop in lithium salt product prices was a key factor in the company's declining performance.

Similarly, Tianqi Lithium, another industry leader, was impacted by the volatility in lithium salt prices. The company’s 2023 revenue reached 40.503 billion yuan, a slight increase of 0.13% year-on-year, but net profit was 7.297 billion yuan, down 69.75% year-on-year.

Moreover ,other lithium-related companies, including Zangge Mining and Shengxin Lithium Energy, also reported varying degrees of decline in their 2023 performance.

“The previous surge in lithium carbonate prices was irrational. With the supply-demand relationship has stabilized, it won’t be occured the sky-high prices of 600,000 yuan per ton again,” an industry insider noted. Due to the previous spike in lithium carbonate prices, lithium salt producers enjoyed historically high profits, but such profitable days are unlikely to return.

Although lithium prices are unlikely to return to their peak, the disclosed data shows that lithium mining companies have maintained their basic production and operation stability. For example, Tianqi Lithium, except for keeping profits above 7 billion yuan, has maintained high cash flow levels thanks to previous high lithium prices.

According to disclosures, Tianqi Lithium’s net cash flow operating in 2023 was 22.688 billion yuan, up 11.78% year-on-year. Salt Lake Potash, a leader in lithium extraction from salt lakes, also had abundant cash flow, with a net cash flow from operating activities in 2023 was 12.105 billion yuan.

“Although lithium prices have fluctuated significantly, lithium carbonate was still a high-gross-margin product for companies extracting lithium from salt lakes,” the article noted. Zangge Mining reported an average lithium carbonate selling price of 216,900 yuan/ton in 2023, while the cost was only 37,400 yuan/ton, maintaining a high gross margin despite the price decline, indicating a competitive advantage for salt lake lithium extraction companies.

Positive Outlook for Lithium Salt, Expansion Projects Actively Advancing

“Every industry has cyclical fluctuations. It’s somewhat shortsighted to lose confidence in the industry's prospects due to short-term performance declines,” said a representative from Zangge Mining. The exploration and development of lithium resources are long processes. Despite the accelerated development of lithium resources, high-quality resources is still scarce.

For lithium mining companies, the profitability upon the backdrop of lithium prices return rational may lie in reducing costs to highlight competitive advantages. The key to cost reduction is enhancing self-sufficiency in resource supply. Recent disclosures in the annual reports of lithium mining companies indicate that some companies are accelerating the development of their resources.

For example, Tianqi Lithium is pressing ahead with projects like the 30,000-ton lithium hydroxide project in Zhangjiagang, Jiangsu, the 24,000-ton lithium hydroxide project in Kwinana, Australia, and the Yajiang Cuola Spodumene project. The company’s current lithium chemical product capacity is 88,800 tons/year, and with the announced plans, its total capacity for lithium compounds will exceed 140,000 tons/year.

Salt Lake Potash, which holds the Chaerhan Salt Lake resource share, stated that its 40,000-ton lithium salt integration project is progressing as planned and is expected to be completed by the end of 2024, driving significant breakthroughs in the company’s new energy materials field.

Tibet Mami Cuo Salt Lake mining ,regarded as Zangge Mining’s second growth, also reported positive progress. According to the company’s annual report, nine of the ten pre-requisite procedures for the Mami Cuo Salt Lake mining rights certificate have been completed, with the final one in process.

Demand Shows Signs of Recovery, Lithium Prices Expected to Rise Slightly in the Near Future

Although the drop in lithium prices has led to performance declines for lithium mining companies, inventory levels disclosed in their annual reports remain within controllable ranges.

According to Tianqi Lithium’s annual report, chemical raw materials and chemical manufacturing inventory data showed that as of the end of 2023, the company’s inventory was 13,000 tons, a significant increase year-on-year; Ganfeng Lithium’s inventory was 7,000 tons, also up year-on-year.

“The inventories of Tianqi Lithium and Ganfeng Lithium reflect insufficient demand for lithium salt products. However, some manufacturers’ deliberate withholding to stabilize prices might also be a factor. For leading companies, inventory levels is also regarded as within reasonable ranges,” said an industry insider. With the recent increase in lithium carbonate trading activity, related company inventories may decrease.

Recently, lithium carbonate prices have stabilized above 110,000 yuan/ton, offering a hope for upstream lithium material companies. Interviews reveal that there are signs of recovery in lithium salt transactions, indicate a slight increase in lithium prices is possible.

“Sales have significantly picked up recently, and we currently have no inventory,” a representative from Zangge Lithium told. Since the end of March, downstream cathode material manufacturers have shown more enthusiasm for purchases, and some previously heavily impacted traders have re-entered the procurement market.

Salt Lake Potash’s lithium carbonate inventory has also decreased. A company insider noted that as of the end of 2023, the inventory was 2,619 tons, with 5,220 tons sold during the Chinese New Year, current inventory keep low levels.

“Recent demand has indeed increased, and our production has also goes up,” said a representative from a leading lithium salt manufacturer. Previously, the company responded to the drop in lithium carbonate prices by reducing production. With the recent recovery in downstream demand, the company is gradually increasing capacity, planning to produce 3,000 to 4,000 tons in April, reaching about 50% of planned capacity.