Australia’s Orocobre Ltd and Pilbara Minerals Ltd on Thursday gave bearish outlooks for lithium demand, as weak orders from electric vehicle makers in China look set to extend a prolonged downturn.
Orocobre Ltd flagged a tepid market for the first half of 2020 and said it had cut costs at its flagship Olaroz lithium project in Argentina. Its shares sank 3.7%.
Pilbara Minerals said it was continuing to moderate production to “match customer demand” after scaling back mining at its Pilgangoora operations in Western Australia in September. Its shares slid 12%.
Lithium miners faced severe pressure last year as prices plummeted after a cut in EV subsidies by China, the world’s biggest electric vehicle market.
That pressure is set to extend well into 2020, as prices for spodumene, a hard rock concentrate produced mostly in Australia, have continued to fall and stockpiles have grown.
“If you are a concentrate producer, you are struggling. You do have inventories in the supply chain that are yet to be worked through, you have capacity that is still in excess of demand,” said Reg Spencer, an analyst at broker Canaccord.
“We’re only coming off the back of the U.S.-China trade agreement and now the whole world is being hit by jitters over the coronavirus. This will all serve to keep a lid on market conditions in China with regards to lithium EVs and batteries.”
Among positive signs for the market, executives noted Tesla’s launch of a SUV program at its Shanghai factory and a decision by China to not make significant cuts to subsidies for new energy vehicles this year.
“We expect to see weak market conditions continuing for the first half of this year. There is potential for improved market balance in the second half,” Orocobre CEO Martin Perez de Solay told an analyst call.
In the meantime, lithium miners are accepting lower prices and curtailing output.
Orocobre cut its lithium carbonate sales price for the December quarter to maintain market share and slashed operating costs by 16%, while Pilbara said a final investment decision on a chemical conversion facility – a joint venture with Posco – has been delayed by six months.
That follows Wesfarmers Ltd’s announcement last month that it was delaying its final investment decision on the Mt Holland lithium project by a year, while Galaxy Resources Ltd said it would scale back operations by about 60% at its flagship Mt Cattlin mine in 2020.
(By Melanie Burton; Editing by Edwina Gibbs)