The ASX lithium share sector is currently facing significant challenges, with a substantial decrease in lithium prices leading to a decline in sector profitability.
Unsurprisingly, the share prices of various companies have dropped significantly over the past year, too.
The Pilbara Minerals Ltd (ASX: PLS) share price is down more than 40%, the IGO Ltd (ASX: IGO) share price has dropped over 60%, the Mineral Resources Ltd (ASX: MIN) share price has fallen over 50%, the Liontown Resources Ltd (ASX: LTR) share price is down more than 70% and the Sayona Mining Ltd (ASX: SYA) share price is down around 80%.
The Australian Financial Review reported on analysis by the broker Citi that, apart from one operation, every other Australian lithium mine was losing money based on the average lithium price during the three months to 30 June 2024.
Low-cost leader
According to Citi, the only profitable mine in the last few months has been the Greenbushes project in Western Australia.
ASX lithium share IGO is part-owner of Greenbushes, along with Albemarle and the Chinese business Tianqi.
One of the advantages of this project is that it's the world's largest hard rock lithium mine – scale normally comes with advantages.
The AFR reported Citi came to this conclusion by looking at the recent lithium price and the mining costs of Australia's lithium mines.
At the start of September, the lithium price was approximately US$720 per tonne, according to S&P Global Platts. The lithium price has reportedly dropped more than 20% in the last 45 days.
Citi reached its conclusion by using a profitability metric used by ASX gold shares called the all-in sustaining cost (AISC), which includes freight and royalty costs.
According to Citi, the lithium projects of Pilgangoora, Mt Cattlin, Wodgina, Bald Hill, Mt Marion, and Kathleen Valley are all loss-making.
The AFR reported that after the expansion capital expenditure is included, Liontown's Kathleen Valley is the least profitable, requiring a lithium price of US$1,500 per tonne to be breakeven. If the growth capital expenditure is excluded, the commodity price level required for profitability is US$900 per tonne.
Is there any hope for ASX lithium shares?
The newspaper reported lithium prices are forecast to hit a low in the three months to December 2024, but that's assuming there are cuts to global lithium production to rebalance the market.
Citi is baffled as to why there have been no major cuts in lithium supply in Australia, considering the very low lithium price.
While there's no obvious catalyst for the lithium price to recover, Citi points out that as some project operations become larger, thanks to scale benefits, unit costs for an ASX lithium share like Pilbara Minerals could be reduced. However, bigger scale may not spur a huge jump in profitability like a rise in the lithium price would.
