The lithium cycle has turned again, perhaps proving the Australian sector was not facing the existential threat so many of us feared.
This time last year, the local lithium sector was hanging onto life. Mines and processing plants were closing, exploration had dried up and even the established producers were forced into curtailing production and saving costs.
The mood was caused by tumbling lithium prices and an assumption the great EV adoption thematic was overblown.
Twelve months on, prices are buoyant, miners are talking about expansion and dozens of explorers are remembering to report lithium intercepts again after only focusing on gold for a year.
On the supply side, the rise of stationary battery storage and the oil price-inspired rush towards EVs has blown up all forecasts.
I’ve heard, read and written a lot about lithium over the past decade, how it is a special market, unlike the traditional base and precious metals Australian miners usually deal with. Countless times I have been told versions of “Pricing is opaque”, “So much depends on individual product quality”, “There is no predictable demand trends”.
The latest volatility may only reinforce those claims, however, prices recovering and companies regaining confidence if anything proves that lithium is beginning to act like any other commodity. It goes through cycles with the requisite ups and downs we see in copper, nickel, zinc or iron ore.
The difference for lithium is both ends of the market are nascent, so the peaks and troughs are more pronounced as either oncoming supply rapidly outstrips demand, or unpredictable demand growth catches suppliers by surprise.
It seems likely this volatility will continue but flatten over the coming decade as both supply – particularly long-life assets such as the lithium brine projects in Latin America – and demand grow to such an extent that unpredicted shifts on either side no longer have a dramatic effect on the overall balance of the market.
Mature markets like copper or iron ore see price movements but they are rarely affected to any great extent by “black swan” events because the markets are so deep. Lithium is heading towards such a state.
It has not been the only commodity for which industry observers have predicted end-times.
Whenever a price turns, or a major mine closes, or a new overseas operation opens up, there is inevitably predictions of doom.
However, in my two decades in the sector, the end has rarely come. Of those commodities for whom a local industry doesn’t exist anymore, only potash reckons as a total flop, and that occurred before it even properly started.
Some of you may be already thinking about the West Australian nickel sector, and I cannot argue that it is certainly not what it used to be.
Most of the commentary has blamed Indonesia’s arrival as a nickel superpower – funded by Chinese stainless steelmakers – as the death knell for WA nickel. However, while Indonesia hastened the process, in reality the demise of the WA nickel industry was already in play.
The standard argument goes that Indonesia has flooded the market with cheap nickel, driving down spot prices and making it impossible for WA miners to compete.
Several elements of the argument are true; Indonesia did rapidly expand production and did so at low cost, but the LME nickel price has largely recovered. At the time of print, LME nickel was trading at just under $US20,000/t, a ceiling it has broken for only a single 18-month period in the last 15 years.
Kambalda and Widgiemooltha, as well as Leinster and Forrestania, operated for years at much lower prices than today but they were all found more than a generation ago, and their discovery has barely been repeated since. The last great nickel discovery – Nova-Bollinger – is the last nickel sulphide player standing in WA and is actually making good money at current prices.
Similarly, Kambalda, Widgiemooltha, Leinster and Forrestania all operated through sustained periods of much lower prices than today and survived. They could be producing at a profit today but they were tired assets when they closed, high-cost but more importantly deep and seismically unstable. Regardless of where the price sat, without new discoveries the industry was always going to shrink.
In many ways, it is a similar case for zinc-lead mines. As deep, high-cost operations, Australian zinc assets are always going to struggle to compete on the international stage. Nothing has particularly “killed” the sector. Wages, input costs and approvals all play a small role of course, but the fact is, Australia’s base metals sector was full of mature assets because the money wasn’t spent on exploration to discover new assets.
The Australian lithium sector is still at the beginning of its journey. There are many more economic discoveries to be made and more ways for the producers to navigate through choppy waters.
We will not be predicting its demise any time soon.