The rags-to-riches lithium producer expects prices to continue to soften in the short term before Chinese battery chemical makers start to rebuild inventory.
The market forecast comes after a big drop in the price that Pilbara Minerals received for its spodumene concentrate in the March quarter.
Pilbara Minerals boss Dale Henderson said a number of factors, including discounting on fossil fuel-powered vehicles and an end to electric vehicle subsidies in China, were behind the softer prices.
Mr Henderson pointed to US battery chemical giant Albemarle’s $5.5 billion bid for Liontown Resources and a string of big investments by car makers such as GM and Ford as an indicator of long-term strength in demand for lithium as electric vehicle sales continue to grow.
He said there was a price war between sellers of internal combustion engine (ICE) vehicles and EVs in China.
“The ICE vehicles within China have been heavily discounted to move that stock in advance of some tightening on Chinese emission standards coming into effect from July 1,” he said.
“So that of course has put some strong short-term competition we think in the market around EVs versus ICE.”
Pilbara Minerals is poised to move even further downstream, and is in talks about a partnership deal to convert spodumene from an expansion of its Pilgangoora mine about 120 kilometres south of Port Hedland into high-value lithium chemicals.
Pilbara Minerals already has an 18 per cent stake in a 43,000-tonne-a-year lithium hydroxide plant being built by POSCO in Korea with an option to own up to 30 per cent.
The company said it was pursuing additional partnering opportunities with a diverse range of players in the battery materials supply chain, and that a deal was expected before the end of the year.
Mr Henderson said talks were still at an early stage. He said that based on preliminary discussions, Pilbara could invest at Pilgangoora to produce an intermediate material, whereas any lithium hydroxide plant was likely to involve an offshore partnership.
Spodumene mined at Pilgangoora fetched an average price of $US4840 a tonne in the March quarter, down 15 per cent from $US5668 in the December quarter.
Pilbara Minerals warned it expected prices to continue falling into the June quarter until pricing for lithium chemicals stabilises, including domestic pricing in China.
Meanwhile, and in light of the softer market conditions, Pilbara Minerals in price review talks with customers under the terms of its offtake agreements.
The company’s biggest customers include China’s Ganfeng, which also mines lithium in Western Australia in partnership with Chris Ellison’s Mineral Resources, General Lithium and car maker Great Wall, followed by POSCO.
Production of spodumene concentrate at Pilgangoora was down 9 per cent quarter-on-quarter to 148,131 tonnes on the back of maintenance and other shutdowns and processing of lower grade feedstock.
The drop in production, lower lithia recovery and other factors led to a jump in operating costs. Pilbara Minerals revised full-year cost guidance from between $580 and $610 a tonne to between $600 and $640 a tonne.
Pilbara Minerals said cost pressures – due to a labour shortage in the mining sector, a disrupted supply chain and higher inflation – remained.
Despite the market and cost headwinds, Pilbara Minerals increased its cash balance by $457 million to $2.68 billion over the March quarter.
In February, Pilbara Minerals posted a net profit after tax of $1.24 billion, up almost 1000 per cent from $114 million at the same time last year. Pilbara Minerals shares close 5.3 per cent, or 21c, higher at $4.17.
