The lithium market has been under significant pressure, and the recent financial forecasts from Tianqi Lithium highlight this troubling trendWith an anticipated net loss of over 7 billion yuan in 2024, the company's performance represents its worst annual results since going public.

On the night of January 23, Tianqi Lithium announced its performance forecast, indicating that the net loss for the parent company could reach between 7.1 billion to 8.2 billion yuan, a stark contrast to the profit of roughly 7.3 billion yuan reported in the same period last year

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This news sent ripples through the market, further emphasizing the struggles of this leading player in the lithium industry.

Following the announcement on January 24, Tianqi Lithium's A-shares fell by 0.61%, while its H-shares saw a modest increase of 1.31%. The mixed market reaction reflects a broader sense of uncertainty regarding the company's future.

Tianqi's loss of over 7 billion yuan raises alarms

The projected losses follow a troubling trajectory that began in the first three quarters of 2024, where the company reported a net loss of approximately 5.7 billion yuan

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The forecast for the fourth quarter anticipates an additional loss ranging from 1.4 billion to 2.5 billion yuan, indicating a continued downward trend.

As a leader in the lithium industry, Tianqi's performance is closely tied to the fluctuations of the lithium marketIn its announcement, the company pointed out that while it achieved growth in production and sales of lithium compounds and derivatives, the overall market price for lithium products experienced a significant decline, resulting in considerable drops in both sales prices and profit margins compared to the previous year.

Additionally, the pricing mechanism for lithium concentrate from its subsidiary, Talison Lithium, faced mismatches with the sales pricing of the company's lithium chemicals, further contributing to the operational losses experienced in 2024.

Data from iFinD indicates a stark price decline in battery-grade lithium carbonate, which has dropped from around 97,000 yuan per ton in early 2024 to about 75,000 yuan per ton by year-end

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Industry insiders also analyzed that pricing pressures due to oversupply could lead the lithium price center to stabilize around 70,000 to 80,000 yuan per ton.

Concurrently, Tianqi Lithium is reevaluating its projects involving battery-grade lithium hydroxide productionThe company has conducted analyses and impairment tests related to both the first and second phase lithium hydroxide projects that are already in the works.

They disclosed an expected impairment provision totaling around 2.163 billion yuan, with approximately 1.412 billion yuan allocated specifically to construction projects and right-of-use assets.

These lithium hydroxide projects have undergone several adjustments since their inception

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Work began on the first and second phases in Australia between 2016 and 2017, demonstrating the company’s strong commitment to expanding its lithium production capabilities.

In the first half of 2020, Tianqi decided to slow down the debug progress for the first phase project, citing fiscal constraintsThe correlation of the second phase project to the first was also noted, leading to similar postponements due to market fluctuations and liquidity issues.

As of now, the first phase is still ramping up production, while the second phase project remains on holdBy December 31, 2024, investments related to these projects totaled around 197 million USD (approximately 1.412 billion yuan).

In light of ongoing losses, Tianqi Lithium has ultimately resolved to discontinue the second phase lithium hydroxide project, arguing that further investment would be economically unfeasible based on current product market conditions, project operational assessments, and anticipated future costs.

Ongoing Challenges with SQM Nationalization

Another significant factor contributing to Tianqi Lithium's financial troubles is its crucial partnership with the Chilean company SQM (Sociedad Química y Minera de Chile), a major player in the lithium market.

In 2018, in an effort to bolster its overseas lithium resource holdings, Tianqi invested around 4.1 billion USD to acquire a stake in SQM, one of the world's largest producers of both iodine and potassium nitrate, as well as a leading producer of lithium carbonate and lithium hydroxide.

However, since 2024, this substantial investment has become a source of significant issues for Tianqi

As SQM’s performance began to decline, the Santiago court ruled on tax litigations from 2017 and 2018, which led to the reversal of a previous ruling made in November 2022. The outcome was an estimated income tax charge of about 1.1 billion USD, severely impacting SQM’s profits and, consequently, Tianqi’s equity earnings from this investment.

In its latest performance forecast, Tianqi further projected that SQM’s 2024 earnings would significantly decline compared to the previous year, leading to a sharp drop in the investment returns recorded in 2023.

Simultaneously, against the backdrop of Chile considering lithium resource nationalization, SQM entered into a partnership agreement with the Chilean state copper company in May 2024 to form a joint venture controlled by the government

Starting in 2031, this would mean that SQM would lose its controlling rights over its key lithium operations in the Atacama salt flat, which holds the largest lithium reserves globally.

Tianqi noted that the future returns from SQM could be affected by these developments, complicating their earnings from this investment, while the rights of the company as SQM's second-largest shareholder remain uncertain.

Despite multiple petitions for administrative review regarding these issues, Tianqi's requests have continually been denied by Chilean authoritiesAs of late July 2024, Tianqi's wholly owned subsidiary, Tianqi Lithium Chile, has initiated legal proceedings in Chilean courts, but details on any progress remain undisclosed.

Investors have been inquiring if Tianqi considers divesting its stake in SQM

However, the company has refrained from providing a direct answer, stating instead that it is closely monitoring publicly available information from SQM and diligently assessing the situation with the consideration of maximizing value for all shareholders.

It is also noteworthy that during this tumultuous period, Tianqi proceeded with its “second-generation succession.”

At the end of April 2024, Jiang Weiping, the founder and actual controller of Tianqi Lithium, stepped down as chairman, passing the reins to his daughter, Jiang AnqiWith nearly ten years of experience in the lithium industry and a solid background within Tianqi, she faces the daunting task of navigating the company through these turbulent times.

In the wake of the market turmoil of 2024, the situation for this new generation leader is certainly challenging, with Tianqi Lithium's total market value dropping from approximately 64.8 billion yuan at the end of April to about 49.3 billion yuan currently.

In discussing the downward trend in the lithium market, Tianqi expressed in its September 2024 investor relations activities that lithium price fluctuations are influenced by the overall supply-demand balance in the industry, market variations, and economic conditions, alongside futures market dynamics, participant interactions, and expectations among relevant players