Pilbara Minerals agrees new offtake agreement but challenging environment persists for spodumene producers

Amidst the ongoing global fallout from the coronavirus, Australia’s Pilbara Minerals have announced a five-year 75,000 tonnes per annum offtake agreement with Chinese Yibin Tianyi, a joint venture company backed by Contemporary Amperex Technology (CATL).

The deal reflects Pilbara’s ongoing relationship with CATL, China’s only Tier One lithium ion battery manufacturer, which took an 8.5% stake in the spodumene producer in September 2019. The move further cements Pilbara’s position in CATL’s expanding supply chain roadmap.

Pilbara announced that the first shipment of 20,000 tonnes of spodumene concentrate was completed this March and expects the second shipment in April or early May.

The deal adds Pilbara’s strong portfolio of offtakers – which includes Ganfeng Lithium, POSCO, General Lithium, and Great Wall Motor Company – and will help sustain their ongoing rampup through the current challenging price environment.

Earlier in March, Australian-based spodumene producer, Altura Mining, secured a new financing package totalling $202 million with an extended loan facility until August 2023, enabling the company to continue its own ramp up.

Despite the positive news coming out of the sector, spodumene producers have seen increased downward pressure on their margins, particularly as new producers face the inherent struggle of bringing down costs at a time when they are having to pull back on production targets.

Benchmark Minerals’ Lithium Forecast shows that a backlog of material at the end of 2019 saw 25,000-50,000 tonnes LCE of excess material carried over into 2020. This oversupply has contributed to a downward trend in prices which has seen Benchmark Minerals Spodumene prices fall from $675/tonne in February 2019 to $463/tonne in February 2020, with further falls in March 2020.

In this testing environment producers have responded by cutting output and stalling expansions. Despite these measures some operators have struggled to survive as prices move closer to cost, with Alita Resources already having falling victim in August 2019 as it suspended operations at the Bald Hill project.

The consequences of coronavirus will see battery demand fall short of previous expectations for 2020, delaying the reduction in this backlog.

Although China’s initial rebound should bolster these efforts to some extent, we expect spodumene prices to remain below 2019 levels for much of the year.