The decline in lithium prices combined with the performance drop of SQM led to Tianqi Lithium's loss of 5.7 billion in the first three quarters, with a reduced loss QoQ in Q3

Affected by lithium price fluctuations and the YoY decline in the performance of its associate company SQM, Tianqi Lithium (002466.SZ) reported a loss of 5.7 billion yuan for the first three quarters of this year. The impact of falling lithium prices and pricing mechanism mismatches persisted, resulting in continued losses in Q3, but the loss narrowed QoQ compared to Q2.

On the evening of October 30, Tianqi Lithium announced that for the first three quarters of 2024, the company achieved a net profit attributable to shareholders of -5.701 billion yuan, compared to a profit of 8.099 billion yuan in the same period last year, turning from profit to loss YoY. In Q3, the net profit was -496 million yuan, compared to a profit of 1.646 billion yuan in the same period last year; the Q2 loss was 1.309 billion yuan, and the Q3 loss narrowed QoQ compared to Q2.

Tianqi Lithium stated that the performance decline was mainly due to a significant drop in the average selling price and gross profit of lithium products compared to the same period last year. Additionally, according to Bloomberg's forecast, the performance of the company's associate company SQM in Q3 this year is expected to decline significantly YoY, and the investment income recognized by the company from this associate during the reporting period also declined significantly YoY.

The company also mentioned that the mismatch in the timing cycles between the pricing mechanism of chemical-grade lithium concentrate from its subsidiary Talison Lithium Pty Ltd (referred to as "Talison") and the pricing mechanism for the company's lithium chemical products sales led to a phase of losses.

A reporter from Caixin noted that since Q4 last year, this has been the fourth consecutive quarter of losses for Tianqi Lithium. However, considering the losses of 3.897 billion yuan and 1.31 billion yuan in Q1 and Q2 this year, respectively, Tianqi Lithium has been reducing its losses quarter by quarter.

In the announcement, Tianqi Lithium also mentioned that in the first three quarters of 2024, the market price of chemical-grade lithium concentrate decreased, and the price of newly procured lithium concentrate from Talison also dropped accordingly. As the newly purchased low-cost lithium concentrate gradually enters inventory and the existing inventory is gradually consumed, the cost of chemical-grade lithium concentrate used in production at various bases is gradually approaching the latest procurement prices. The phase mismatch in the lithium concentrate pricing mechanism is also gradually weakening, resulting in a QoQ reduction in losses for both Q2 and Q3 of 2024.

Regarding gross profit margin, Tianqi Lithium's gross profit margin in Q3 was 44.13%, down 48.22 percentage points YoY, reaching the lowest level in nearly four years. However, in the first three quarters and Q3 of this year, the production and sales volumes of lithium compounds and derivatives both increased YoY and QoQ. Specifically, the sales volume of lithium compounds and derivatives increased by 67.71% YoY from January to September 2024, and the sales volume in Q3 increased by 24.69% QoQ compared to Q2.

Despite the quarterly reduction in losses, Tianqi Lithium still faces the risk of weakened investment returns from its significant associate company SQM, in addition to the potential downward fluctuation of lithium carbonate prices. According to the semi-annual report, on May 31 this year, SQM and Codelco (Chilean state-owned copper company) officially signed a "Partnership Agreement," which stipulates that starting from 2025, the core lithium business of the Atacama Salt Lake will be majority-owned by Codelco in the joint venture, and Codelco will consolidate the financial statements from the second phase of the agreement.

As a result, Tianqi Lithium insists that the decision to "nationalize" SQM requires a special shareholders' meeting resolution. After the Chilean Financial Market Commission (CMF) rejected this request upon review, Tianqi Lithium filed a lawsuit against the CMF's decision in a Chilean court on July 26 this year. As of the disclosure date of this report, the lawsuit is still under trial.