Tianqi Lithium’s profit beats expectations but falls quarter on quarter: Why are lithium prices falling alongside inventory drawdowns?
Tianqi Lithium’s earnings per share exceeded market consensus in the third quarter of 2026, but lower lithium prices weighed on quarter-on-quarter performance. Bernstein believes falling inventories and pressure on marginal supply will support lithium prices, with mine restarts and year-end battery demand as key variables.
Original source：BernsteinFirst published on Unhidea：Original source date：
Key takeaway
Tianqi Lithium’s third-quarter earnings recovered sharply year on year but weakened quarter on quarter as lithium prices fell. Bernstein expects inventory drawdowns and the restraint that low prices place on supply to support lithium prices, and believes new capacity reaching its designed output could increase the company’s benefit from a recovery in lithium prices.
Why did performance weaken sharply quarter on quarter despite the third-quarter earnings beat?
Tianqi Lithium’s net profit attributable to shareholders was 1.36 billion yuan in the third quarter of 2026, up 1324% year on year. Earnings per share were 0.79 yuan, approximately 14% above the market consensus of 0.693 yuan. Revenue was 6.04 billion yuan, up 135% year on year.
Compared with the second quarter, however, revenue fell 15% and net profit attributable to shareholders declined 43%. Lithium carbonate prices fell 11% quarter on quarter in the third quarter, and the revenue decline exceeded what changes in lithium prices alone could explain. Earnings from associate SQM also contributed significantly to quarterly profit, so Bernstein believes profitability in the wholly owned lithium business was weaker than attributable net profit suggests.
The third-quarter gross margin was 63.0%, relatively stable compared with 64.4% in the first half. After averaging approximately 18 thousand US dollars per tonne in the third quarter, lithium prices fell further to approximately 15 thousand US dollars, which will continue to affect near-term earnings.
Why are lithium prices still falling as inventories decline?
According to Mysteel, China’s lithium carbonate inventories were approximately 103 thousand tonnes, close to half the midyear level of 208 thousand tonnes. They have fallen by approximately 28 thousand tonnes since the beginning of September and currently represent approximately 24 days of inventory. Over the same period, prices fell from approximately 200 thousand yuan to 100 thousand yuan per tonne.
Bernstein believes prices reflect expectations of weaker supply and demand ahead: expectations that the Jianxiawo mine would restart reduced the supply-disruption premium previously priced into the market, while reports of production cuts in the battery supply chain also raised concerns about slowing demand. The firm noted that reports at the time indicated the Jianxiawo mine had not yet restarted.
The inventory data itself is also disputed: after SMM adjusted its statistical methodology, reported inventories made a one-off jump from 90 thousand tonnes to 170 thousand tonnes, weakening market confidence in the inventory drawdown signal. Bernstein believes the more pessimistic supply-and-demand expectations had not yet been fully reflected in the spot market.
What conditions will affect the outlook for lithium prices?
Bernstein believes prices of approximately 100 thousand yuan per tonne are squeezing recycling operations and higher-marginal-cost capacity. If production is cut further, a contraction in supply could support prices.
The timing, ramp-up speed and actual incremental output of the Jianxiawo mine’s restart are key near-term variables. On demand, the firm expects lithium iron phosphate production to continue growing in the fourth quarter of 2026. Whether battery production can maintain growth from November to December will influence the market’s assessment of slowing demand.
The firm believes prices will become more sensitive to changes in supply and demand when inventories fall to approximately 15 to 20 days. At the inventory drawdown rate prevailing at the time, that level could be reached before year-end.
How do Tianqi’s new capacity and cash flow affect its valuation?
Greenbushes’ CGP3 project reached its design capacity of 500 thousand tonnes per year after ramping up in 2026; it was still in the ramp-up phase in the first half. Bernstein believes the capacity now in place gives Tianqi greater scope to benefit when lithium prices rise.
Operating cash flow for the first three quarters was 5.65 billion yuan, up 157% year on year. On that basis, the third-quarter figure was approximately 3.44 billion yuan, while the second-quarter figure was negative 390 million yuan. Over the same period, cash outflows for capital expenditure fell 40% year on year to 1.48 billion yuan, but rising receivables mean working capital remains an area to watch.
Bernstein maintained its outperform rating, with target prices of 80 yuan for the A-shares and 65 Hong Kong dollars for the H-shares. Its discounted cash-flow valuation uses a weighted average cost of capital of 9% and a perpetual growth rate of 2%, and assumes a long-term lithium carbonate price of 16 thousand US dollars per tonne.
