Strong Results Expected to Continue with Evolving EV Market

Q1 2023 Record Gross Cash Margin

Allkem Limited’s (TSX | ASX: “AKE”) March 2023 Quarterly Activities Report showcased impressive results for its lithium portfolio. The Olaroz Lithium Facility produced a record-breaking 4,102 tonnes of lithium carbonate during Q1 2023, a 38% increase compared to the previous corresponding period (PCP). Lithium Carbonate sales generated a record quarterly revenue of approximately US$159 million with an outstanding 91% gross cash margin, or US$47,814/tonne.

Excluding shipments to Naraha, third party lithium carbonate sales for the quarter averaged US$53,175/tonne FOB, meeting guidance and showing a slight increase from the December quarter. The weighted average price for third party sales of lithium carbonate products in Q4 FY23 is expected to be approximately US$42,000/tonne, subject to final sales allocation.

Spodumene Sales and Forecasts

During the same quarter, Mt Cattlin produced 38,915 dry metric tons (dmt) of spodumene concentrate at a 5.3% Li2O grade, marking a significant 2.3x increase quarter on quarter (QoQ). The recovery of 60% demonstrated considerable improvement in grade and favorable mineralization as mining shifted to more central zones of the main ore body.

Spodumene sales of 21,553 dmt generated revenue of around US$123 million, with a gross cash margin of 81%. The average sales price was US$5,702/dmt CIF for SC 5.2%, which corresponds to approximately US$6,500/dmt on a SC6 CIF basis, reflecting an 8% increase QoQ and surpassing prior guidance. Pricing in the June quarter is expected to be around US$5,000/dmt CIF SC6.

An additional US$33 million of revenue was generated from sales of 54,064 dmt of low-grade spodumene concentrate.

Allkem’s Lithium Market Outlook

The first quarter of the calendar year is historically the slowest period for lithium consumption due to various factors, including EV subsidy policy adjustments, seasonal destocking, scheduled maintenance outages, and the Lunar New Year break in China. Despite these challenges, demand continued to grow steadily, albeit at a lower rate than expected.

In China, some EV OEMs sought to gain market share through price discounting, causing consumers to delay purchases. This wait-and-see behavior continued as Internal Combustion Engine (ICE) vehicle OEMs pursued aggressive price reductions, aiming to destock inventory that would be in breach of emissions targets being introduced in July 2023. This slower than expected EV growth impacted the battery material supply chain, which had procured feedstock and built capacity in anticipation of a higher growth rate.

However, the fundamentals underpinning lithium demand remain strong. EV sales continued to grow during the March quarter, with Chinese EV sales increasing by 25% YoY and sales in the US and EU posting strong growth and higher-than-expected penetration against ICE vehicles. Global EV sales forecasts remain at around 14 million units, implying a steady acceleration during the remainder of 2023.

Customer demand in the spodumene market remains robust, driven by lithium hydroxide
requirements outside China, and pricing has better resisted the spot price erosion observed in China on other lithium products.

Allkem Ltd. March Quarterly Report

Despite recent volatility and delays in additional supply materializing, the outlook for lithium remains optimistic. The growing EV market supported by government targets and policies, is expected to continue driving demand for lithium carbonate and spodumene in the coming quarters. Delays to additional supply materializing on time and on budget persisted throughout the quarter, reflecting the complexity involved in expansion projects. Nevertheless, the steady growth of the EV market is likely to contribute to an increase in lithium supply in the near to medium term.

Conclusion

In conclusion, Allkem Limited’s record lithium carbonate and spodumene prices in Q1 2023 highlight the company’s strong performance in the lithium market. As the EV market continues to grow, driven by robust demand and supportive government policies, the outlook for lithium remains positive. This trend is expected to contribute to sustained growth and strong financial results for Allkem Limited in the coming quarters.