It is an essential element of the green energy transition and just a few years ago Australia was in the front seat of a lithium boom, but a new wave of supplies has put their competitive edge under pressure.

Consumers are increasingly opting to drive EVs, and governments continue to invest in solar and wind projects, yet lithium miners have spent the last year watching the price of their ore sinking.

Last week, the financial pain inflicted by a year of declining lithium prices was revealed as Australia’s major producers opened their balance sheets up for investors.

Profits were down across the board as companies grappled with prices that had dropped by more than 50 per cent in just 12 months.

Mineral Resources managing director Chris Ellison told investors he had seen many downturns in the past, but this one stood out.

“This is the shittiest time to be the [managing director] of a company,” he said.

Pilbara Minerals CEO and managing director Dale Henderson offered a more tempered view of the past year.

Earlier this year, low prices sent Core Lithium’s Finnis mine into care and maintenance.

Supply competition

Australia produces most of the world’s spodumene, a base material for lithium hydroxide and lithium carbonate.

Most of it is exported to China for further processing into battery materials, however, some miners have joint ventures with Chinese lithium firms for processing.

These batteries power everything from phones and laptops to EVs and large-scale renewable energy storage.

WA miner IGO is undertaking a feasibility study into constructing an “integrated battery materials facility” in Perth.

While Pilbara Minerals has a joint venture with South Korean firm POSCO to operate a lithium hydroxide monohydrate chemical facility in Gwangyang.

In the coming years, more mines are expected to boost lithium supplies even further.

UBS analysts estimate that new, Chinese-owned mines in Zimbabwe could account for around 15 per cent of the world’s lithium carbonate equivalent supplies by 2028.

“African supply is helping keep the market in oversupply and this will continue to place downward pressure on prices,” a recent UBS report concluded.

Price crash

Over the three months to September 2022, Pilbara Minerals was getting an average of $US4,266 a dry tonne (dmt) for its spodumene.

Over the same quarter in 2023, that price had tumbled to $US2,240 dmt, and by the June quarter this year, it was getting an average price of $US840 dmt.

Prices shot up in 2021 and 2022 as Chinese battery manufacturing and electric vehicle sales rapidly expanded.

But at the same time, new supplies were coming online from mines in China, Africa and South America.

So when the growth of electric vehicle sales started to slow this year, and battery manufacturing output eased, the price of lithium took a sharp dive.

Slowing EV sales

Globally, electric vehicle sales continue to grow each year.

“We are seeing growth of 32 per cent in North America this year, 7 per cent in Europe,” S&P Global Mobility’s director of electrification technology research, Graham Evans, said.

While Chinese automakers have found huge success in Australia, in Europe, the USA and Canada they’re being hit with massive tariffs.

Automakers in those markets are struggling to compete with lower-cost Chinese EVs: major brands like Ford, VW and Porsche revealed earlier this year they had missed their sales targets.

Mr Evans said Western automakers had so far failed to offer an EV in the B and C classes that meet the desired metrics for range, charging time and cost.

“Mainstream vehicles like the Volkswagen Polo, Volkswagen Golf size, at this stage, aren’t there,” he said.

“These are very challenging to make profitably, with high margins for the car manufacturers.”

“So waiting for an abundance of these vehicles to become available will give consumers that choice to go out and purchase an equivalent vehicle to what they have at the moment.”

Damage control

The cascading impact of slowing EV growth on lower battery manufacturing output has seen lithium stockpiles build up and prices scrape close to the cost of production for Australia’s lithium mining companies.

In response, Mineral Resources is reducing lithium production.

“I’m starving the product going into the market, I don’t want to oversupply the market and I don’t want to waste my ore,” Mr Ellison said.

But another major Australian producer, Pilbara Minerals, is lifting production.

Its goal is to increase production by an additional 50 per cent over the next 12 months.

“What we’ve learned historically from lithium pricing is that it can change, and it can change rapidly,” managing director Dale Henderson said.

“It doesn’t faze us that much because we know the long-term outlook is fantastic.”

New demand

S&P’s Graham Evans said mandates for the phase-out of internal combustion engines and emissions reductions targets all underpin future demand for lithium.

And policies like the USA’s Inflation Reduction Act and the EU’s Critical Raw Materials Act are incentivising the creation of new battery supply chains outside of China.

“We will need a more diverse array of lithium sources in order to meet these requirements,” he said.

Pilbara Minerals recently revealed it would purchase ASX-listed Latin Resources, which had a mine under development in Brazil.

That company’s former managing director, Ken Brinsden, is now developing a new lithium mine in Quebec, Canada.

“I think governments are intensely focused now on China’s dominance,” he told the ABC.

“So in our experience, that leads to a lot more conversations about how these new supply chains outside China are going to develop.”