In recent months, the lithium industry has been experiencing a significant downturn, leading one of its prominent players, Ganfeng Lithium (002460.SZ), to report a shocking transition from profitability to a considerable loss. The company's financial woes, highlighted in their semi-annual report, reflect the larger challenges facing the lithium market amid declining prices and increased inventory write-downs.

According to Ganfeng's report for the first half of 2024, the firm posted a staggering revenue of approximately 9.589 billion yuan, marking a sharp decline of 47.16% compared to the previous year. Even more alarming was the net loss of 760 million yuan, an unprecedented 113% drop year-on-year, which represents the first time Ganfeng has reported a loss since its public listing in 2010. The company's stock price has likewise taken a tumble, falling to 26.39 yuan per share by August 29, reflecting a cumulative drop of about 36% for the year. This decline is starkly contrasted against its peak value of 157.4 yuan established in September 2021.

These financial struggles are not exclusive to Ganfeng Lithium; they signify a broader industry trend. The price of lithium carbonate has plummeted from an unprecedented high of 500,000 yuan per ton at the beginning of 2023, with some estimates suggesting it has fallen as low as 70,000 yuan per ton. As this decline continues, numerous companies within the sector are grappling with impaired inventory values and reduced profitability. Despite these challenging conditions, Ganfeng's strategy is counterintuitive as they persist in their efforts to acquire mining assets.

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Ganfeng Lithium has disclosed that the downward trend in lithium prices has substantially impacted its earnings from lithium salt products. The company reported a 52.4% year-on-year decrease in revenue from lithium series products, along with a 33.73% decline in revenue from lithium battery products. The gross margins for these products have also decreased significantly, with lithium compounds showing a gross margin of just 11.75%, diminishing by 12.37 percentage points from the previous year, while lithium battery cells saw a margin decline to 9.88%, down by 9.06 percentage points.

In terms of inventory impairment, Ganfeng Lithium recognized approximately 82.6 million yuan in asset impairment during this reporting period, constituting 8.22% of its total profits. The main contributor to this impairment was attributed to the cyclical impacts of the lithium industry, necessitating the company to adjust its financial forecasts.

Industry analysts suggest that Ganfeng Lithium's struggles can be traced back to the beginning of 2023, when the company first reported a net loss of 439 million yuan in the first quarter. By the end of the first half of the year, losses had escalated to 760 million yuan, with the second quarter alone accounting for more than 320 million yuan in losses. Additionally, Ganfeng has incurred significant losses from its financial investment in Pilbara Minerals Limited, as the stock price of Pilbara fell dramatically, resulting in a fair value loss of around 874 million yuan, or 86.91% of their total profit for the period.

Despite these financial challenges, Ganfeng Lithium has not paused its ambitious expansion plans. Instead, the company has actively increased its stake in Mali Lithium to 60%, securing control over the company. The Goulamina lithium spodumene project, under Mali Lithium’s management, is in its final stages of construction, with production of the first batch of lithium spodumene products expected by year’s end. Furthermore, on May 7, Ganfeng's wholly-owned subsidiary proposed a $342.7 million acquisition to gain the remaining 40% interest in Mali Lithium to manage the Goulamina project fully.

However, Ganfeng acknowledged the inherent risks associated with lithium resource development. Variations in governmental export policies, geopolitical tensions, natural disasters, and transportation interruptions could all negatively impact production schedules and reduce the available resources necessary for production and expansion. As such, the company’s overall financial well-being is contingent upon a myriad of external factors beyond its control.

On a broader industry level, the lithium market remains volatile. Increased production of lithium salts has continued to push prices downward, breaking through the cost barriers of many enterprises. According to statistics from the China Nonferrous Metals Industry Association’s lithium division, lithium carbonate production surged approximately 48.8% to about 298,000 tons in the first half of 2024, while lithium hydroxide production grew 21.4% year-on-year to around 175,000 tons.

Recent price data indicates that, as of August 29, the price of domestic lithium carbonate (battery-grade 99.5%) stood steady at approximately 74,400 yuan per ton. Over the preceding five days, it has fallen by 580 yuan, and in the past month, has decreased by an alarming 12,020 yuan. Meanwhile, lithium hydroxide (battery-grade 56.5% coarse particles) witnessed a decline of 280 yuan, reaching its lowest price in over three years at 72,000 yuan per ton, with a dramatic 9,200 yuan drop in 30 days.

Analysts from Yingda Futures have pointed out that the current imbalance in demand and supply within the lithium carbonate market has caused upstream producers to exercise caution, whilst downstream purchasers exhibit a weakened interest in procurement. The market sentiment remains pessimistic, with predictions that despite the losses faced by lithium producers, there is a lack of significant progress towards production reductions, contributing to an ongoing surplus that the industry has yet to alleviate effectively. Market fluctuations in lithium carbonate prices are anticipated to continue in the short term, with competitive negotiations ongoing.

Industry insiders have noted that the sector is currently in a bottom-testing phase. While further decreases in lithium prices are a possibility, the release of integrated production capacities may help lower average production costs across the sector significantly. Producers lacking their own mining assets or facing higher operational costs are at greater risk of market exit. Consequently, the industry landscape is poised for a potential transformation as it navigates these challenging times.