Falling shipping rates may be improving Australian lithium producers' coffers, but they are not a quick fix to the persistent supply chain challenges that are keeping the sector from expanding quickly enough to meet soaring demand.

Australia is already the largest global producer of raw lithium, and it wants to crank up production to catch up with demand amid the ongoing global energy transition. But the global pandemic that began in 2020 snarled shipping, raised costs and delayed delivery of vital equipment. Shipping prices have dipped recently, but Australian producers, desperate to capture record-high lithium prices, are frustrated at their inability to cash in.

IGO Ltd. continues to see some tightness in the shipping market and elevated prices, acting CEO Matt Dusci told S&P Global Commodity Insights in an email interview. "However, peak tightness in shipping seems to have passed, based on current availability and rates coming back down," Dusci said.

IGO is part-owner of Greenbushes, the world's largest hard-rock lithium mine, as well as related downstream infrastructure in Western Australia.

"Freight rates are lower," said James Bruce, executive general manager of lithium and iron ore producer Mineral Resources Ltd., during the company's third-quarter results call Oct. 26 when asked about the economics of its Yilgarn iron ore project in Western Australia.

Commodity Insights data shows Handysize vessel freight rates from Western Australia to Lianyungang, China, have dropped 54% since peaking March 9 in the early days of the Ukraine war.

Conservative approach

Pilbara Minerals Ltd. has seen "long-lead items becoming longer-lead items" in its growth projects, CEO and Managing Director Dale Henderson said in an Oct. 25 quarterly call.

Henderson said that while Pilbara's customers were "beating down the door" to secure lithium from the Pilgangoora project in Western Australia, "we've been getting on with getting orders done as rapidly as we can to mitigate those risks, but we are seeing supply chain challenges globally, as are others."

To manage the uncertainties, Allkem Ltd. is taking a conservative approach to its growth projects after experiencing another delay in its Salar de Olaroz expansion project in Argentina as well as revising its full-year 2023 production guidance at the Mt Cattlin lithium mine due to labor shortages in Western Australia.

Allkem CEO Martín Pérez de Solay told analysts that piping and electrical equipment for Olaroz has been delayed amid "supply chain issues that have popped up in Eastern Europe as a consequence of the war," despite contractors committing to firm deadlines.

"It has been an interesting time in the market trying to manage these critical parts," Allkem Ltd.'s chief project development officer, James Connolly, said in an Oct. 21 third-quarter results call.

First production from Olaroz stage two has been pushed back to the second quarter of 2023, Pérez de Solay said. Pre-commissioning is scheduled to start by the end of 2022, with commissioning set for the first quarter of 2023.

Capital expenditure for Allkem's other growth projects — James Bay in Quebec and Sal de Vida in Argentina, which are both under construction — "remain subject to the same cost pressures that all resource projects are experiencing globally," Allkem said.

"We're in the process of constantly reviewing the forecast on our projects," Pérez de Solay said.

S&P Global Platts assessed battery grade lithium carbonate and hydroxide at 542,000 yuan per tonne, or US$75,000/t, and 532,000 yuan/t, respectively, on Oct. 20, both up roughly 180% year on year, according to Commodity Insights data.

As of Oct. 28, US$1 was equivalent to 7.25 Chinese yuan.

S&P Global Platts is an offering of S&P Global Commodity Insights. S&P Global Commodity Insights is owned by S&P Global Inc.

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