With an ever-expanding demand for battery-grade lithium, producers are calling for a change in how the raw material is priced. Higher prices are currently starting to squeeze consumer margins and this margin pressure, according to Peter Hannah from Fastmarkets, is likely to get worse before any improvements are seen.
Already, attempts have been made to introduce spot pricing into the lithium market. In 2021 Pilbara minerals introduced a Battery Material Exchange for price discovery of their spodumene product, offering a three hour auction with 17 bidders. On July 18th this year, they held their fifth offering with a thirty minute bidding window for qualified buyers receiving a high bid of US$6,350/dmt.
Futures contracts cash settled against the Fastmarkets’ lithium indices have also been announced or launched by LME, CME and SGX. This has allowed the option of locking in future prices while still hedging exposure.
Mr. Hannah said that pricing practices will alter rapidly as the market grows. The current contract price mechanism lags on spot prices and he believes that ‘a more mature spot index-based pricing mechanism with a transparent price signal’ is required to settle the markets current volatility.
Lithium makes up only .0007 percent of earth’s crust, with Australia producing the second highest levels after Chile. Any increase in demand, with such a meagre supply, will send prices skyrocketing. UBS analyst Tim Bush estimated that the supply deficits for lithium would head towards 3 million tonnes by 2030.
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With the element an essential ingredient in electric vehicle (EV) batteries, car manufacturers are being forced to take an interest in the raw material source. Electric car makers, Tesla, Ford Motor company and Korean steel manufacturer POSCO are all moving towards investments in raw materials. The industry has come along way from the days when car manufacturers intent on expanding their EV models considered lithium the battery supplier issue and nothing to do with them.
Liontown Resources Managing Director, Tony Ottaviano, believes that the introduction of a standardised index for spodumene would aid ‘continuous price discovery’. During his presentation at the 2020 Diggers and Dealers mining forum he said that increasing volumes would provide depth, reliability and encourage industry investment. He compared the Lithium market to iron ore which thrived with the introduction of a spot price and the increased industry participation, accuracy, transparency and governance that went with it.
Tianqi Lithium refiners and Lithium miners Pilbara Metals have also been overwhelmed by the strong demand for their product. Chief Operating Officer of Tianqi Lithium Kwinana said to The West Australian that he would definitely consider offtake deals which had been offered by ‘all’ of the EV producers. Tianqi’s, in a joint venture with IGO and TLC, has recently produced its first 10 tonnes of battery grade specification lithium hydroxide at its Kwinana, WA, plant.
No longer a niche market, lithium players predict that it will become unfeasible for prices to continue to be fixed for lengthy periods and a dynamic pricing structure will emerge.
References
https://mailchi.mp/republicpr/the-ripple-from-lake-resources-mar-22?e=f96ddd4796
ResultsofBMXAuction (irmau.com)
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