Lithium prices are spiraling lower. So which companies have the lowest production costs?

Lithium prices in China tumbled more than 5% on Monday to break below 120,000 a tonne and mark a fresh 26 month low. The downward spiral comes as Chinese EV maker BYD cut domestic prices on certain models by as much as 10% amid growing competition.

The world's second-largest lithium producer, SQM, says the pain is far from over and warned investors of further price declines in its third-quarter earnings call last week.

"Most of our sales contracts are tied to price indices that mirror market price trends, and these indices have experienced a notable decrease since the start of the current year. We believe this trend could continue for the reminder of the year," the company said in a statement.

The lithium market is in the thick of a second bear market, revisiting the cost profile of existing producers is essential. Are there any companies dangling dangerously close to being unprofitable? Who's the lowest cost producer?

Current Lithium Prices

It's important to acknowledge that lithium prices are opaque with lots of different contracts and grades. Lithium miners also have long-term contracts, which will differ from spot and future prices.

With that said, let's recap the latest lithium prices:

Spodumene:

• S&P Global Platts: US$1,400 dmt (6.0%) on FOB basis as at 24 November
• Shanghai Metals Market: US$1,850 dmt (5.5% to 6.2%) as at 27 November

Lithium carbonate:

• S&P Global Platts: 125,000 yuan a tonne (US$17,630) as at 24 November
• Shanghai Metals Market: 135,500 yuan a tonne (US$19,040) as at 27 November

Lithium hydroxide:

• S&P Global Platts: 121,000 yuan a tonne (US$17,055) as at 24 November
• Shanghai Metals Market: 125,000 yuan a tonne (US$17,630) as at 27 November

Production Costs

Pilbara Minerals (ASX: PLS): Spodumene (~5.3% basis) costs of US$489 a tonne in the first quarter of FY24 on a FOB basis. While costs could moderate in the upcoming quarters, the first quarter figure is above the company's FY24 guidance of US$390 to US$436 a tonne.

Allkem (ASX: AKE): Produces both spodumene and lithium carbonate hydroxide. In the September quarter:

• Olaroz Lithium Facility produced lithium carbonate at US$6,088 a tonne
• Mt Cattlin produced spodumene (~5.3%) at US$636 a tonne on a FOB basis

Liontown's (ASX: LTR): Kathleen Valley Definitive Feasibility Study forecasted a 10-year average cash cost of A$651 (US$430) a tonne for spodumene (~6.0%).

IGO (ASX: IGO): Spodumene at cash costs of A$262 (US$173) a tonne in the September quarter.

Core Lithium (ASX: CXO): Spodumene costs of A$1,889 (US$1,225) a tonne in the September quarter. The company expects to get costs down to A$1,165 to A$1,250 a tonne (US$770-830) in FY24.

Piedmont Lithium (ASX: PLL): Spodumene (~5.3%) of US$805 a tonne in the September quarter.

Interesting Takeaways

Production costs for Core Lithium jumped to A$2,386 (US$1,585) a tonne in the March quarter due to several headwinds including increased stripping costs (the process that removes the layer of rock and soil that covers the ore body), cost inflation and lower-than-expected ore grades. Costs improved to A$1,691 (US$1,124) in the June quarter before bouncing higher to $1,889 (US$1,225) a tonne in the September quarter. The company is in a place where costs are dangling dangerously close to market prices.

Despite being one of the world's most cost-effective producers, IGO's share price has plummeted nearly 45% since early September. This decline is partly attributed to its joint venture partner's decision to reduce its spodumene intake due to unfavourable pricing and demand conditions. 

Jefferies believes its current valuation does not capture the intrinsic value of its asset suite but uncertainty surrounding sales volumes and pricing will likely weigh on the share price in the medium term. This is a classic scenario where the valuation can remain arguably 'irrational' due to subdued market conditions.

This article was originally published on Market Index.