Tianqi Lithium Faces Financial Hurdles, Halts Australian Expansion Amid Falling Prices

Key Highlights

• Tianqi Lithium warns of a net loss between 7.1 billion to 8.2 billion yuan for 2024.
• The company halts expansion at its Kwinana lithium refinery in Australia due to poor prices and revised plans.
• The decision follows a 90% price drop in lithium from its 2022 peak, triggering widespread industry struggles.
• Tianqi’s Shenzhen stock price drops by 4.3%, signaling investor concern.
• Analysts predict weak sentiment for Tianqi’s Kwinana joint venture with IGO Ltd.

Tianqi Lithium Corp. has issued a stark warning to investors, predicting a net loss of up to 8.2 billion yuan ($1.1 billion) for 2024. This marks a significant setback for one of China’s leading lithium producers as it grapples with ongoing challenges in the lithium market.

In a statement released recently, Tianqi attributed the expected loss to a combination of factors, most notably the sharp decline in lithium prices and substantial changes to its construction plans. The company also revealed that it faced an impairment of approximately 2.2 billion yuan, a figure that could rise further due to alterations in its Australian operations.

The announcement marks a difficult phase for the battery-metals sector, which has seen lithium prices plummet by nearly 90% from their peak in 2022. This decline has sent shockwaves through the industry, forcing companies to re-evaluate their expansion strategies and cut back on investment.

Market Slowdown and Impact on Investments

Tianqi's financial struggles are not isolated. Global lithium markets have been grappling with oversupply issues, as demand for electric vehicles (EVs)—a primary driver for lithium consumption—has cooled. While the EV sector had experienced a surge in demand during the earlier years of the decade, recent signs of slower growth have had ripple effects across the entire supply chain. Tianqi’s losses are a direct result of these changing market dynamics.

In particular, Tianqi’s investment in the Chilean lithium producer, Sociedad Química y Minera de Chile (SQM), has also faltered. Lower income from this investment further compounded Tianqi's financial challenges, signaling that its portfolio of lithium assets is underperforming across key regions.

Halting Expansion in Australia

One of the most significant moves announced by Tianqi is its decision to pause construction of the second production line at its Kwinana lithium refinery in Western Australia. The project, which was expected to add 24,000 tons of lithium hydroxide per year to the company's capacity, was deemed "not economically viable" under current market conditions.

Tianqi emphasized that the decision to halt expansion came after assessing market conditions, the performance of its first production line, and the anticipated future costs. The move reflects a broader trend within the lithium industry, where companies are reassessing large-scale investments due to volatile prices and uncertain demand growth.

The Kwinana refinery project has been under development since 2020, and the second production line had already seen an investment of 1.4 billion yuan. However, Tianqi had delayed the expansion in the past, largely due to a liquidity crisis that constrained its ability to fund new ventures. With this new suspension, the company aims to avoid further financial losses while continuing to ramp up the production capacity of the first line of the project.

Tianqi’s move to halt expansion is a critical moment for its Australian joint venture with IGO Ltd., a partnership that had high hopes for Kwinana as a major lithium production hub. IGO has already faced challenges at the plant, with a recent major shutdown allowing for maintenance and performance improvements. While lithium hydroxide inventory has been increasing in recent months, it remains unclear how long this positive trend will continue and whether it will be sufficient to offset broader market downturns.

Stock Price Reaction and Investor Sentiment

Tianqi’s stock price in Shenzhen has already felt the impact of the announcement, dropping by as much as 4.3% to 29.85 yuan in early Friday trading. This drop underscores the mounting investor concern surrounding Tianqi’s ability to weather the storm in the current market environment. Analysts have noted that sentiment toward the company’s Australian operations, particularly the Kwinana refinery, is weak, especially given the ongoing delays and financial strain.

Citigroup analysts pointed out that the halt in the second production line removes some uncertainty for Tianqi’s partner IGO, but the real question is how long the first line will take to prove its viability. The financial performance of the Kwinana project now appears to be a key concern for investors in both companies, and it remains to be seen whether the plant can deliver sufficient returns to justify further investment.

Industry-Wide Challenges

Tianqi's struggles reflect a broader issue within the lithium market, where the dramatic price drop has forced many players to scale back ambitions. The steep decline in lithium prices, which soared during the peak demand period in 2022, has left companies facing significant financial strain.

As prices fell sharply over the course of 2023, many producers—including Tianqi—were left reeling, adjusting their production schedules, suspending expansion projects, and reevaluating the economic viability of their existing assets.

Despite these challenges, some industry players are optimistic that the lithium market will stabilize as supply and demand find a new equilibrium. However, this remains uncertain, as geopolitical tensions, trade policies, and fluctuations in global demand for EVs could continue to weigh on the market.

Looking Ahead: What’s Next for Tianqi?

Tianqi's decision to scale back its expansion plans comes as a clear signal that the company is taking a cautious approach in the face of a challenging market. Investors will be closely watching how Tianqi manages its existing assets, particularly the first production line at Kwinana, and whether it can adapt to the shifting dynamics in the lithium market.

For now, the immediate outlook for Tianqi and the broader lithium sector remains one of cautious optimism, with a focus on cost management, efficiency, and adjusting to the realities of a post-boom market. The company’s ability to navigate these challenges will likely define its performance in the coming years.