Chinese lithium giants Tianqi Lithium (SZSE: 002466) (SEHK: 9696) and Ganfeng Lithium (SZSE: 002460) (SEHK: 1772) are bucking the trend caused by slumping lithium profits, and continuing to reach for more market share.
Both companies indicated on Monday they would continue to pick up global lithium reserves and increase production capacity. The two companies reported strong drops in net income for 2023 late last month after prices tanked over 80 per cent over the year.
Conversely, a number of companies from Australia to the U.S. are cutting back on output and spending due to improved supply prospects and slowing demand growth from electric vehicles. However, Chinese firms are defying this trend.
According to its earnings report, Tianqi seeks partners to explore high-quality lithium sources and plans to speed up work at its Yajiang mining and processing project in Sichuan province. Meanwhile, Ganfeng’s expansion strategy involves plans to “gradually collect and develop” low-cost resources, including lithium derived from brine, and to enhance processing facilities in China and Argentina.
The optimistic remarks from these companies resonate with the strategies of Chinese miners such as CMOC Group Limited (SHA: 603993). and Zijin Mining (SHA: 601899), who are actively pursuing M&A opportunities in battery materials amid emerging signs of a potential price recovery.
“There is likely to be a consolidation in the industry as low-cost producers seeking to increase their market share merge and integrate with the high-cost producers struggling financially,” BloombergNEF said.
Read more: Lithium South Development updates leadership roster, appoints new director
Majority of companies reacting to depleting lithium prices
As the global energy transition accelerates, those capable of navigating the boom-and-bust cycle maintain a positive long-term demand outlook for lithium. ANZ Group Holdings Ltd said last week in a that the supply of battery metals needs to increase by up to 3.5 times in the next five years, a target that is “not easily achieved.” This situation could lead to a sector shakeout that Chinese firms aim to preempt.
While the majority of companies are reacting as expected to depleting lithium prices, Tianqi and Ganfeng are joining a small and growing trend of companies continuing with production unabated by market fears.
Sociedad Química y Minera de Chile (SQM) (NYSE: SQM), the world’s second-largest lithium producer, announced the adoption of an unconventional strategy in response to the current oversupply in the lithium market.
Despite a significant drop in quarterly profit by 82 per cent, SQM plans to continue building its lithium stockpiles, anticipating a market rebound. This decision comes at a time when excess inventory is pushing lithium prices down, with SQM expecting only a 5 to 10 per cent increase in its sales as global demand for lithium is projected to rise by at least 20 per cent.
Lithium South Development Corporation (TSXV: LIS) (OTCQB: LISMF) (Frankfurt: OGPQ) and South Korean steel company, Pohang Iron and Steel Company (POSCO) (KRX: 005490) are among the few producers also continuing with lithium production. These companies have partnered to develop the Hombre North Lithium Project (HMN Li Project) in the Salta Province of Argentina, a region where both have significant operations.
Lithium South Development Corporation is a sponsor of Mugglehead News Coverage
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