Lithium Giants Hit by Overseas Project Hurdles

The lithium market, once a glittering goldmine for leading companies, is now reflecting a stark contrast to its previous boomsThe giants of the industry, Ganfeng Lithium and Tianqi Lithium, have announced dramatic anticipated losses for 2024, with the combined projected deficit soaring to tens of billionsIn a recent disclosure, Ganfeng Lithium (002460.SZ, 01772.HK) revealed that its Argentine Mariana salt lake project phase one has commenced productionHowever, along with this news came a disheartening earnings forecast predicting a net loss ranging from 14 billion to 21 billion yuan, marking a staggering decline of over 128% compared to the previous yearSimilarly, Tianqi Lithium (002466.SZ, 09696.HK) is expected to face losses between 71 billion to 82 billion yuan during the same period, illustrating a continuation of troubling trends within the lithium sector.

Both companies have cited fluctuations in the lithium product market, particularly a significant drop in sales prices for lithium salts and lithium battery products, as the main culprits for their financial distressTianqi also indicated that the termination of overseas investments and other factors would result in an estimated asset impairment provision of approximately 21.63 billion yuan for 2024, further compounding its difficulties.

The drastic shifts in financial outlook have been likened to freefalling into an abyss, an unfortunate turn for enterprises that once thrived amid soaring demands for lithium used in electric vehicle batteries and other technologiesGanfeng’s losses have been linked to a 117.94% to 135.88% decline in net profits when excluding one-off items, highlighting the sweeping impact of market turbulence that affects even those with high shipment volumesDespite significant year-on-year increases in product deliveries, the adverse economic environment has overshadowed these gains.

In the broader context, experts within the industry have highlighted the dual pressures faced by lithium battery manufacturers: competitive price wars and the cyclical downturn of the industry, resulting in perpetual devaluations within the lithium supply chain

Advertisements

Consequently, many lithium companies find themselves routinely writing down inventory values, which gravely affects profitabilityNotably, the pricing for battery-grade lithium carbonate has followed an alarming trajectory, plummeting from approximately 100,000 yuan per ton at the start of 2024 to around 75,000 yuan per ton by year's endWhile the volatility isn’t quite as severe as seen in 2023, persistently low prices are a significant detriment to upstream lithium mining profits.

As a direct consequence of the declining lithium prices, overall profitability within the domestic battery market has falteredStatistics indicate a dramatic decline in combined profits from the lithium battery value chain, shrinking from 209.5 billion yuan in 2022 to just 65.2 billion yuan by the third quarter of 2024. Given the historic performance during the fourth quarter often representing over 30% of total annual profits, projections suggest total profits for the lithium industry could hover close to 100 billion yuan in 2024.

In contrast to Ganfeng's situation, which while dire, appears somewhat less severe compared to Tianqi Lithium’s notable lossesTianqi's estimates indicate a potential net loss of between 71 billion to 82 billion yuan in 2024, a stark comparison to their profit of approximately 72.97 billion yuan during the same period last yearDespite expected growth in the production and sales volume of lithium compounds and derivatives, market instability continues to erode prices, pushing overall revenues and margins downward.

There’s also a discussion about the challenges faced by companies venturing abroad, particularly in relation to the ever-complex geopolitical landscapeAs Ganfeng Lithium and Tianqi Lithium grapple with their own challenges, industry analysts agree that “going global” is increasingly viewed as an essential strategyFollowing a decade-long push to diversify resource sources beyond Chinese borders, these companies are now meeting myriad logistical and regulatory hurdles that initially complicate overseas ventures.

For instance, Tianqi Lithium’s efforts to expand its operations have involved significant investments in Australian hydroxide lithium projects, yet both phases of these projects remain stalled, negatively impacting its financial stability