The Rise of the Tianqi/ALB "Evil Empire"?

The Rise of the Tianqi/ALB "Evil Empire"?

December 28, 2015

In part one of the Talison story the point was made that Tianqi and Albemarle’s (ALB) strategies for the Talison JV seemed mis-aligned. That situation seems to have changed and now the two entities appear to have found a way for each of their needs to be met; at least in the short term. Unfortunately the success of Tianqi and ALB’s leveraging of Talison will come at the expense of the Chinese spodumene converters and the lithium market in general via more limited supply choices and higher prices.

According to feedback I received after I posted part one - the major spodumene converters in China who largely rely on Talison have been informed that from now on Talison will sell directly only to their owners (Tianqi and ALB) and not the broader lithium chemical conversion market.

After battling over the acquisition of Talison a couple years ago and finally forming the 51%/49% Talison JV, Tianqi and ALB/Rockwood now seem to be working together to leverage Talison and effectively take control of the China carbonate and hydroxide market from a pricing and volume perspective.

For their part, Tianqi has been raising spodumene price in China and limiting supply to other China converters (their competitors). Going forward, Albemarle seems intent on taking their share of the spodumene and trying to force the China converters to toll produce lithium chemicals in 2016 and beyond so ALB receives: additional product for the market, the China price upside and converters are left with only a little better than break-even tolling fee.

The desired end result is that Tianqi should be able to maximize their profits by filling up the own capacity first and then supplying only limited volumes to their competitors at high prices.

Tianqi limiting volumes to converters will enable ALB to leverage their share of Talison spodumene by effectively forcing converters to utilize their large unused capacity to toll produce carbonate and hydroxide in order to run their plants at a reasonable utilization rate. This strategy will enable ALB to make up for their underperforming hydroxide plant in North Carolina and add carbonate available for sale in China. ALB is currently “sold out” of carbonate from their legacy capacity. The “spodumene strategy” will effectively force converters to share their China carbonate profits with ALB.

ALB can’t run their delayed expansion in Chile effectively until they receive permission to pump additional brine. Once they receive an expanded permit, it will be well over a year before the brine is concentrated enabling the new plant capacity to run at a meaningful rate.

Things are working out well for Tianqi from a market value perspective. Despite coming down from recent highs – Tianqi still has a market value of over 36 Billion RMB (~USD 5.6 Billion).



Tianqi is resented and distrusted by other Chinese producers and customers based on their consistent predatory behavior. Rockwood/ALB has a history of undeserving the China market. Memories are long in the Middle Kingdom – ALB may not care now but long term they may find their behavior in China was not the best choice.

As a diversified specialty chemical company, ALB is much less exposed to lithium than Tianqi. ALB’s stock performance has been less than stellar over the past 12 months. Despite having the largest global lithium business, it is doubtful even a booming global lithium market and short term leverage in China will drive better than average stock performance for ALB shareholders.



The future of the China Market

The Tianqi/ALB alliance will likely have at best short term dominance in China. Galaxy’s plan to restart their Mt Cattlin spodumene mine early in 2016 and Neometal’s plan to start-up their new spodumene capacity in the second half of 2016 will be welcomed by the converter market even at high prices. Longer term Pilbara may rival Talison in size and scope of resource.

Orocobre could supply limited relief to Chinese cathode producers if they can produce at a reasonable capacity level in the second half of 2016; however I think the bigger story will happen in 2017 when North America gets back into hard rock lithium production and provides yet another alternative to the China market. More details will come in a post in early 2016.

SQM found out in the late 1990s that “taking out” high cost competitors was easier to do in the iodine market than the lithium market. For a time, SQM took the lithium carbonate price down by more than half (below the cost of some competitors) when they entered the market almost 20 years ago. They succeeded only in destroying value for everyone and actually slowed their broad market entry by making the battery customers nervous about their quality (why else would they offer such a cheap price?). The market dynamics are much different today.

Tianqi and ALB’s strategy and tactics  in an attempt to dominant high cost competitors is completely different than what SQM attempted twenty years ago. The end result will be the same - short term market disruption but no long term value addition.

Lithium has always been a unique market that doesn't behave in traditional commodity fashion.

Written by

Joe Lowry
One of the World's Leading Lithium Market Experts

https://www.linkedin.com/pulse/rise-tianqialb-evil-empire-joe-lowry