China EVs: lithium producers Ganfeng, Tianqi issue profit warnings, blame price plunge for battery material as stocks sink

The two producers of the metal that powers EV batteries expect 2023 net profit to decline by as much as 80 per cent
Ganfeng shares dropped 5 per cent and Tianqi declined 5.9 per cent on Wednesday in Hong Kong

Business of climate change

Eric Ng

Published: 2:30pm, 31 Jan 2024

Why you can trust SCMP

Shares of Ganfeng Lithium and Tianqi Lithium, two of the world’s largest producers of the metal that powers batteries for all kinds of products including electric vehicles (EVs), fell after warning their profits plunged last year due to sharply lower prices.

Xinyu, Jiangxi province-based Ganfeng, which said its production capacity was the world’s third largest and China’s biggest last year, said in a filing late on Tuesday that it expects its 2023 net profit to decline between 70 and 80 per cent year on year to between 4.2 billion yuan (US$587 million) and 6.2 billion yuan.

After accounting for non-recurring losses and gains, net profit will amount to between 2.3 billion yuan and 3.4 billion yuan, down between 83 and 88.5 per cent from the 2022 level, it added.

Sichuan province-based rival Tianqi also posted a profit warning on Tuesday, saying it expects net profit to decline between 62.9 and 72.6 per cent to between 6.62 billion yuan and 8.95 billion yuan.

Workers check batteries at a factory for Xinwangda Electric Vehicle Battery, which makes lithium batteries for electric cars and other uses, in Nanjing in China’s eastern Jiangsu province on March 12, 2021. Photo: AFP

Ganfeng shares dropped 5 per cent to HK$20.90 on Wednesday in Hong Kong, after falling as much as 6.6 per cent in morning trading. Tianqi declined 5.9 per cent to HK$34.45.

“Due to the cyclical [nature] of the lithium industry and the growth rate of [end-user] demand slowing down, [there was] a significant decrease in the price of lithium-salt products,” Ganfeng said in its filing to Hong Kong’s bourse.

This meant the company had to book major provisions for asset impairments, resulting in lower profits, according to accounting rules. It had 35.68 billion yuan worth of lithium ore at the end of June last year, according to its interim results report.

Tianqi also cited declining lithium prices for the need to book asset-impairment losses.

01:11

China’s BYD overtakes Tesla as world’s largest EV maker

Both companies produce lithium carbonate and lithium hydroxide, which are key compounds used to make cathodes and electrolytes in batteries.

The average price of China-produced lithium hydroxide exported to South Korea fell to US$35.50 per kilogram last month, 45 per cent lower than the two-year peak of US$64.40 seen in February last year, according to a January 18 Daiwa Capital Market report, which cited China Customs.

Sales of electric vehicles, the largest source of lithium demand, are expected to grow 20 per cent this year in China, down from 30 per cent last year, Fitch Ratings forecast in a report in November. The nation accounted for around 58 per cent of global battery-powered vehicles last year, according to market research firm Counterpoint.

Chinese EV battery giant CATL to share swapping tech with Didi in joint venture

Global lithium demand is projected to rise 27 per cent this year to 1.23 million tonnes of lithium-carbonate equivalent, after growing 5 per cent last year and 54 per cent in 2022, according to Daiwa’s forecast.

Meanwhile, supply is forecast to grow 30 per cent to 1.26 million tonnes this year, resulting in a 31,000-tonne surplus. This excess is expected to surge to 118,000 tonnes next year before turning to a deficit of 69,000 tonnes in 2026.

“In 2024, we believe the focus will be on the supply side,” said Daiwa’s analysts in the report. “De-capacity is the name of the game.”