Lithium is a core component that goes into the construction of EV battery systems, but as electric vehicle demand falters in the US, do lithium mining operators forecast any production slowdowns on their end?

Sigma Lithium (SGML) CEO Ana Cabral sits down with Market Domination in-studio to talk about the lithium producer's international business. Cabral notes China's "unstoppable" demand for lithium as the nation's automakers, among other industries, lean into electrification strategies faster than other international manufacturers.

China's lithium demand "has been growing double-digits, China just grew 5.3% just recently... electrification in China is a survival of big cities, let's say secular teases. It's a very different drive than here," Cabral says. "50% of all new cars are all expected to be electric in China in about a year... there are green plates everywhere. It's a combination of regulatory with the need to keep cities livable."

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This post was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: The EV market coming under some pressure because of demand concerns, and that weakness has been taking a toll on lithium prices. It's a key component to making EV batteries. Joining us now is Ana Cabral, Sigma Lithium CEO. Sigma Lithium, one of the largest producers in the world, big producer in Brazil, listed here in the US as well. Ana, thank you so much for being here.

ANA CABRAL: No, thank you for having me here, Julie.

JULIE HYMAN: So it's been a very interesting time, a challenging time in the lithium industry--

ANA CABRAL: Yeah.

JULIE HYMAN: --for various reasons, because we've seen that price pullback. You guys, though, are actually expanding your production, even in the face of what's been happening with prices. Talk to us about why you're doing that.

ANA CABRAL: Well, that's exactly right, because it's a volume-driven growth now. Lithium is looking a lot like iron ore. There are very few players that can deliver large scale at the low cost, and we're one of them. So because we're low-cost producers, yes, prices now aren't great. But we have very healthy gross margins, cash flow.

So we will get bigger. And the outcome of all of this is exactly that. I mean, demand is there in the East. The China volumes have been growing healthily. So demand is to grow in double digits for lithium. And when you think about supply, though, that is the challenge. Which of the players can actually continue to deliver volumes in this low-price environment? Well, only those that have very low cost. And there very few of those, and we're one of them. And that's why we're expanding with doubling volumes, basically.

- So what's allowing you to keep those costs-- cost down, particularly in comparison with your competitors?

ANA CABRAL: Well, a couple of elements. I think the main one is when you think about how efficient our operations are, we have a green tech plan, where our processing costs are about 70% lower than the industry. And that is actually where we deliver, you know, zero carbon lithium. We power that plant with renewable power.

So in addition to us being very effective industrially, we are also use renewable power. And that is a low-cost, you know, power. So ultimately, we're able to keep the equation balanced. Because in mining costs where kind of-- where everyone else is, there's not a whole lot that can be done there. It's diesel. It's trucks. It's what it is. But on industrial processing, this is kind of where you win or lose. I mean, do you have efficient industry? You don't.

JULIE HYMAN: Where is your lithium going, right? Where are your end markets? You mentioned China. Are you also seeing US customers as well?

ANA CABRAL: Well, no, everyone buys-- see, it all flows through China. That's a very good point. You actually made a very good point there. The end end user, it's a battery maker. So the challenge is, OK-- not a challenge-- identify the end user. What is the battery maker?

JULIE HYMAN: But it gets processed in-- like you send the raw lithium to China, and it gets processed.

ANA CABRAL: I don't enroll it. And that's the point. I send pre-processed lithium--

JULIE HYMAN: OK.

ANA CABRAL: --which is another advantage we got. That's why we premiumize. We send what we call pre-chemical. So it's particulated. It's a concentrate, but it got large particles. And it's high purity. So we call it pre-chemical.

And they're-- but it-- final specialty chemical processing always in China. So it gets processed in China. And then from there, the question is, who owns my product? Who actually buys these volumes? In our case, we have a commercial and marketing arrangement with Glencore.

So then Glencore distributes to their clients. But so everyone's lithium goes through China as of now, and then it goes out of there into batteries for different producers, right?

- What is that demand from China looking like right now compared with some other cycles that we've been in? How high is it?

ANA CABRAL: Which is the point-- it's been growing double digits. Like, it's-- so China just grew 5.3% just recently and now. So see, electrification in China is a survival of big cities, of, let's say, secular thesis. So it's different-- it's a very different drive than here.

So it's unstoppable. 50% of all new cars are projected to be electric in China in about a year. I mean, there are green plates everywhere. But it's a combination of regulatory with the need to keep cities livable, which is, you know, ah-- a very important element when you think about a country that needs to still urbanize the equivalent of the entire United States.

JULIE HYMAN: So at the same time--

ANA CABRAL: So it's a secular thesis, right?

JULIE HYMAN: So even as you see that growth in China, the EV demand in the US has been weakening, right? And it's expected--

ANA CABRAL: Yeah.

JULIE HYMAN: --to be weak this year. How much does that hurt demand at the margins?

ANA CABRAL: The swing vote is actually Europe, because the US is still a small market. It's less than 9%. The big swing vote is Europe. So what's going to happen to the European market? But again, the overall market is growing double digits because China, which is half the market, is growing incredibly.

JULIE HYMAN: Yeah.

ANA CABRAL: So then you have the balance. 10%-ish is the US, and the rest is Europe. So what happens to Europe? Well, Europe is flat. So going back to the growth story, it is not-- it's a volume growth. It's a winner takes all on the producer side. How does that translate into the winners? The winners are the suppliers that can generate healthy, robust margins in the low cost-- in the low-price environment that we have today, because we have low cost.

So you need to be a low-cost producer. Period. So you're price agnostic. That's what we are. Price is staying the same. We're doing fine. We're making, you know, good revenues. We're making good margins. We're selling. We're fine. We're doing quite well, actually, extremely well.

Then you have the other side of it, which is, you know, there's enough demand to buy four boats of my material. I can only ship one a month, right? And that is going to perpetrate. Because things staying where they are, you're going to see what happened in iron ore, where you're going to have like, what? Five major producers. And that's it.

Because you have to have that scale and be low cost and actually deliver, you know, a modicum of sustainability. I mean, we're zero carbon. We're not saying everyone's going to go zero carbon. But you need to deliver a modicum of environmental, social sustainability to achieve what we call traceability for your client.

JULIE HYMAN: Right.

ANA CABRAL: So-- and they're very-- it's a winner takes all. The bigger will get bigger. We're doubling. We have plans-- so we're doubling for next year. We're planning to triple for the year after one line at a time. We're just going to keep on increasing our volumes.

So it becomes a volume-driven growth. And the more we grow, the lower our costs become because we dilute down our fixed costs.

JULIE HYMAN: Gotcha.

- All right, Ana. Thank you so much. That was really interesting.

ANA CABRAL: Thank you so much.

- Thank you for joining us.

ANA CABRAL: Thanks for hosting me.

- Of course.