Unable to supply lithium concentrates to the company in the short term, Yahua Group terminates lithium concentrate off-take agreement with Core

SMM News on May 14: On the evening of May 13, Yahua Group announced that its wholly-owned subsidiary, Yahua International, had signed a "Settlement, Termination, and Release Deed" with Lithium Development, a wholly-owned subsidiary of Core, terminating the original lithium concentrates "Offtake Agreement" and its supplementary agreement. The announcement revealed that in July 2024, Core announced the suspension of operations at its Finniss lithium mine project, with mineral processing having ceased in June 2024. Following mutual agreement, both parties decided to terminate the original lithium concentrates "Offtake Agreement" and its supplementary agreement. As part of the settlement agreement, Core agreed to pay Yahua International a settlement fee of US$2 million.

The signing of this agreement can be traced back to March 29, 2019, when Yahua International and Lithium Development, a subsidiary of Core, signed an "Offtake Agreement" for lithium concentrates. The agreement stipulated that from the start of commercial production at the lithium deposit until November 30, 2023, Yahua International would purchase at least 300,000 dmt of lithium concentrates containing approximately 6% lithium oxide from Lithium Development. After the lithium deposit commenced production, Yahua International would purchase at least 75,000 dmt (with a fluctuation of no more than 10%) of lithium concentrates containing lithium oxide annually.

Following the termination of the agreement, Yahua Group stated that the termination would not impact the company's lithium resource security. The company has currently established a diversified channel layout combining self-controlled mines and externally purchased ore, constructing a stable lithium resource security system. In terms of self-controlled mines, the company's Phase I and Phase II projects at the Kamativi lithium mine in Zimbabwe were fully completed in 2024, currently capable of processing 2.3 million mt of raw ore annually. Products have been successively shipped back to China for production. In terms of externally purchased ore, the company primarily obtains priority supply rights through equity participation in the Lijiagou lithium mine in Sichuan and secures lithium ore offtake rights through long-term agreements with resources such as Pilbara in Australia, DMCC in Africa, and Atlas in Brazil. These lithium resources can meet the production needs of the company's lithium chemicals capacity.

In terms of self-controlled lithium resources, the company holds a 68% controlling stake in the Kamativi lithium mine in Zimbabwe. Currently, the mine has achieved an annual processing capacity of 2.3 million mt of lithium ore, equivalent to approximately 350,000 mt of lithium concentrates, laying the foundation for the long-term stable development of the lithium business. The commencement of operations at self-controlled lithium mines will significantly alleviate the company's reliance on externally purchased ore and help optimize its cost structure within the lithium resource supply chain.

The company's Phase II project at Kamativi in Zimbabwe officially commenced production in November 2024. Due to the impact of capacity ramp-up and the transportation cycle from Africa to China, the company's lithium production in Q1 2025 will still primarily rely on externally purchased ore. It is expected that the self-sufficiency rate of lithium concentrates will increase in Q2 2025.

Regarding lithium chemical capacity, Yahua Group stated that the company had completed and commissioned a 30,000 mt lithium carbonate production line in 2024. Its current comprehensive lithium chemical capacity stands at 99,000 mt, with 63,000 mt of lithium hydroxide capacity and 36,000 mt of lithium carbonate capacity. It is expected that a 30,000 mt lithium hydroxide production line will be completed in H2 2025, bringing the company's comprehensive lithium chemical capacity to nearly 130,000 mt by the end of 2025.

At the end of April, the company released an investor activity survey report, which mentioned that in 2024, the company achieved operating revenue of 7.716 billion yuan, down 35.14% YoY, and net profit attributable to shareholders of publicly listed firms of 257 million yuan, up 539.36% YoY.

In Q1 2025, the company achieved operating revenue of 1.537 billion yuan, down 17.03% YoY, and net profit attributable to shareholders of publicly listed firms of 82.4644 million yuan, up 452.32% YoY.

Yahua Group adheres to a dual-core business development strategy. During the reporting period, the company's lithium chemical long-term agreement customer orders remained stable, and production lines were gradually constructed and commissioned. Meanwhile, the group leveraged the synergistic effects of overall production, supply, and sales, achieving a good match between purchasing and sales resources. The company capitalized on the capacity and market location advantages of its civil explosives business, actively expanding blasting services while effectively releasing capacity. The prices of major raw and auxiliary materials, such as ammonium nitrate, declined, contributing to the profit growth of the company's civil explosives business. Additionally, the company strengthened control over various aspects of production and operations through cost-reduction initiatives, improving efficiency and effectively achieving cost reduction and efficiency enhancement.

It is worth mentioning that previously, the US's reciprocal tariff had a certain impact on the relevant businesses of some companies in the new energy industry chain. Yahua Group was also asked about related issues, to which it responded that the lithium chemical products produced by its existing domestic production lines and delivered to overseas customers were mainly used in batteries or NEVs sold in China and non-US markets. Meanwhile, the company's civil explosives products were not exported to the US.

However, according to the latest news, China and the US have reached an agreement to mutually suspend the 24% reciprocal tariff increase for 90 days. SMM understands that, overall, due to exemptions for NEVs and their parts before and after this reciprocal tariff adjustment, the change in reciprocal tariffs will have a greater impact on the export of ESS batteries. This may prompt an expected rush in exports of Chinese ESS battery cells, thereby driving up the demand for lithium carbonate.

SMM expects that, given the installation rush demand for ESS at the [grid connection deadline (May 31)] mentioned in China's Document No. 136, the ESS battery cells produced in May may not be able to meet the installation rush in the same month in a timely manner. Therefore, the market previously expected that the production volume of ESS battery cells in May may decrease by 5-10% MoM compared to April. However, influenced by the golden export window period resulting from changes in US tariffs, coupled with the approximately one-month transportation and customs clearance time required from China to the US, it is expected that the production schedules of ESS battery cells for top-tier enterprises will remain at a high level in May and June, with the growth rate of ESS battery cell production expected to turn from negative to positive on a MoM basis.

Meanwhile, it is important to note that there are still many uncertainties in the future. After March 3, 2025, Trump adjusted the tariff policies multiple times, resulting in significant uncertainties regarding the effectiveness of the policy cycle after this round of tariff adjustments. Additionally, as the total tariffs imposed by the US on ESS battery cells still amount to 40.9%, remaining at a relatively high level, further negotiations are needed between US owners and Chinese ESS producers regarding the proportion of tariff burden sharing. Finally, the 90-day window period for this round of tariff policy adjustments will inevitably lead some domestic enterprises to rush exports further. However, considering the current high inventory levels of ESS battery cells in the US, there are significant uncertainties regarding the scale and pace of subsequent rushed exports. 》Click to view details

Driven by the positive expectations of tariff impacts on ESS battery demand, spot quotes for battery-grade lithium carbonate slightly increased on May 14, rising by 100 yuan/mt to a range of 63,600-65,800 yuan/mt, with an average price of 64,700 yuan/mt.

》Click to view SMM's spot quotes for new energy products

From a fundamental perspective, lithium carbonate prices currently remain near the lows of recent years. Under the pressure of cost losses, upstream lithium chemical plants have demonstrated a strong sentiment to stand firm on quotes. Currently, there is only a certain level of transaction activity between traders and downstream enterprises. Despite the aforementioned favorable policy drivers and a slight destocking of lithium carbonate inventory after the Labour Day holiday, the cumulative inventory level of lithium carbonate remains high. Moreover, ore prices continue to fall to new lows, with cost support continuously weakening. Therefore, the overall price trend of lithium carbonate will continue to fluctuate at lows.