During the company’s Q2 2024 earnings call, Arcadium Lithium CEO Paul Graves shared his views on the state of the lithium market, and his Arcadium’s decision to slow its expansion given current market conditions.

Here are some of the key quotes:

On lithium price weakness:

Lithium prices moved lower in the second quarter and have declined even further third quarter-to-date, testing new lows in this cycle. There are a few dynamics we can point to that are contributing to this price weakness.

On lithium demand:

Touching briefly on demand, it’s safe to say that while there has been some recent pullback in near-term U.S. and European EV demand growth, demand growth globally remains robust. On a gigawatt-hour basis, total EV and PHEV sales were 20% higher year-over-year in the first half of this year. Underlying growth in China, where the bulk of lithium demand resides today, remains strong with EV sales exceeding 1 million units in the 11 month of June and penetration rates continuing to set alltime highs.

 

Additionally, demand growth for stationary storage applications continues to be a rapidly growing part of the future total demand picture. In aggregate, there has been very little fundamental change to the long-term demand trajectory for lithium, and this growth is going to continue to require meaningful additional supply to come online if the market is going to be in balance.

On lithium supply:

Additional lithium supply has come into the market at a faster rate than many of us had expected. Much of this supply growth has come in the form of spodumene out of Africa and lepidolite in China, which is much higher cost than most existing supply.

 

Much of the investment in these resources is coming from supply chains directly connected to convertors or end-consumers in China, as they seek to become more integrated into upstream resources as part of a strategy of establishing long-term security of supply.

On spodumene concentrate supply:

Put differently, while the volume of lithium chemicals being processed into the battery supply chain continues to increase at double digit percentages per year, the market for non-integrated spodumene concentrate and lithium chemicals has not been growing at the same rate in recent quarters.

 

Despite this slower external demand growth for lithium products, we have seen spodumene producers in particular continue to increase both their production and shipments of spodumene concentrate.

 

Our own marketing of small volumes of spodumene concentrate from Mt Cattlin shows that the demand for material remains broad, with over 20 bids received for our latest market-testing auction; however, the increase in supply appears to be 13 even greater than this broad demand can absorb, leading to more downward pressure on spodumene prices.

 

And history shows us that when spodumene prices are low, lithium chemical prices in China are also going to be low, and that is certainly the case today. To compound this, we have also seen supply of lithium carbonate from South America continue to grow, albeit at slower rates than the growth in spodumene supply.

 

As a result of this increased supply, we see higher levels of lithium carbonate and spodumene concentrate inventory in the market right now. Much of this inventory is being held by traders and through futures exchanges where activity is increasing, rather than at producers or at end customers.

 

On the trend toward integrated lithium production:

Greater customer and convertor integration and a greater willingness of intermediaries to buy and hold material, combined with the continued flux in technology roadmaps of global OEMs, is resulting in less visibility for lithium producers into true underlying end-market demand than 14 we have had historically.

 

It is easy for producers today to see end-use consumption continue to grow and see this as a proxy for market demand for third-party lithium chemicals; however, the evidence suggests that in today’s environment this connection is not holding true in the short-term.

Longer term lithium price outlook:

Despite this, we view longer-term lithium prices as heavily skewed to the upside from today’s levels, as there is limited ability for prices to move much further down from current levels on a sustained basis.

 

In fact, we believe that prices in China today are well below the cost of the marginal producer and significantly below the prices needed to incentivize further investment. The longer prices stay where they are, the greater the likelihood of production curtailment from high-cost resources and the lower the investments in future supply.

 

We expect that end-market demand growth rates and lithium chemical demand growth rates will return to alignment as the pace of back-integration slows, and this will result in prices increasing towards reinvestment levels at that time.

 

While we have seen more announcements to date of slowdowns and delays from both incumbent producers and junior developers, we do not expect these to materially impact the market in the next few quarters. However, we do believe that the forecasted supply for 2026 and beyond in most independent models is much too high, given the impact of these slowdowns.

 

We expect to see more discipline from producers and less freely available and more expensive capital, especially for those projects that are not backed by existing cash flow or are being developed by companies without a proven track record of success.

 

We also do not believe that lepidolite or African spodumene volumes can continue to expand at the rate we have seen in the last few years. And perhaps just as important, the financial logic of downstream conversion of raw materials into higher-value products, especially outside China, will face much higher 16 challenges, resulting in a very tight market for lithium hydroxide that is not sourced from China.

On the decision to slow Arcadium’s expansion:

We remain confident in a return to healthier market fundamentals over time, as well as in the world-class development projects available in our portfolio. However, we must adapt to the realities of the market we find ourselves in today, and the pace at which we can responsibly invest capital on that basis.

 

Arcadium Lithium has therefore made the decision to pause investment at the Galaxy project in Canada. This remains a world class resource, with leading fundamentals and a projected operating cost that will be amongst the lowest for spodumene assets in the industry.

 

However, we do not believe that the market needs us to bring this volume online on a merchant basis within the next two years, and as I just mentioned, the current economics of 17 building carbonate or hydroxide conversion capacity outside China, absent a very strong long-term customer commitment, are not compelling.

 

We are currently exploring bringing in a partner that is interested in providing capital for the project in return for a long-term strategic investment, likely backed by a long-term supply agreement. The pause will be structured to minimize the cost and timing disruption when this project is ultimately restarted.

 

Additionally, Arcadium Lithium is revisiting the sequencing of its combined 25,000 metric ton lithium carbonate projects at the Salar del Hombre Muerto in Argentina between Fénix Phase 1B and Sal de Vida Stage 1. These projects are also industry-leading, with forecasted operating costs firmly in the first quartile for lithium carbonate production.

 

However, rather than execute both expansions simultaneously as previously announced, the expansions will now be completed sequentially. Doing this will also provide additional time to evaluate how to 18 optimize future development of the Salar del Hombre Muerto complex, where the two projects sit within a few kilometers of each other, especially with respect to the additional infrastructure investments that will be needed for future expansions. It will also allow us to spread the capital spending over a longer period of time.

 

We are not changing our plans for the development of Nemaska Lithium, the 32,000 metric ton integrated spodumene to hydroxide project in Canada. The combination of our progress made to date and the strong customer commitments we have in place for the project give us confidence in continuing to push forward towards commercial production.

 

As a result of our decision to defer investment in two of our four current expansion projects, as well as a process of identifying cost saving opportunities in our remaining projects, we expect to reduce our capital spending by approximately $500 million over the next 24 months.