A Lithium Price Mea Culpa
Updated January 31, 2016
Joe Lowry
It was just a month ago I published the post below about pricing. I had the trend right but missed on the speed and magnitude of the change. The duration of mid-$20s/kg pricing may be a different story but I will wait a few months to (attempt to) make that call.
All I can say is that the rise in the price of lithium has already exceeded my wildest expectations for 2016. Yes, the fact that the Big 3 is honoring contracts will moderate the global average price in 2016 but the reality is the current price inside China and exported from China (that was not contracted in 2015) is already in most cases = or > $20/kg for carbonate and hydroxide.
The fact I am being contacted almost daily by customers around the world who are willing to pay the higher pricing - if they can get the material validates the current shortage situation.
It seems the "Evil Empire" (Tianqi/Albemarle) has accomplished what it sought out to do. Now let's see how it plays out when new spodumene capacity comes online later in the year. In any case, for the foreseeable future, a new era of lithium pricing is upon us.
January 1, 2016
Interest in the lithium market grows with each passing day. Increased demand for lithium ion batteries that power smartphones, e-transportation options (cars, buses, bikes, etc) and ESS has created substantial attention from investors. The current soft market for traditional commodities (oil, steel, etc) has also drawn the interest of many analysts looking for a product with an upward trajectory to comment on.
A renewed high profile of the lightest metal combined with a growing supply shortage - especially in China (the world's largest lithium market) has created a very dynamic pricing environment that will likely last until the end of the decade due to the length of time it takes to bring new brine projects to market.
The failure of Albemarle/Rockwood to bring their carbonate expansion in Chile on-line as scheduled and Orocobre's seemingly endless "start-up" has left supply growth to a small band of Chinese spodumene converters who have built substantial excess capacity that requires a supply of feedstock which is currently dominated by the Talison JV controlled by Sichuan Tianqi and Albemarle. These two companies can collectively be referred to as the "evil empire" if you are trying to source spodumene.
If you need a primer on the spodumene situation please read my recent posts on the topic but suffice it to say the Talison JV's strategy is to manipulate the raw material supply situation. This unhappy circumstance will last until other spodumene suppliers from Australia enter the market and help change the balance of power. Tianqi and Albemarle's recent behavior (shorting supply of Talison material to converters as well as raising the spodumene price) has driven up the lithium carbonate price in China substantially.
Lithium is a very opaque market making accurate pricing data hard to come by. The lack of an LME type pricing mechanism has frustrated lithium purchasers for years. So, what is the current price for the most frequently purchased lithium product - lithium carbonate? My very clear response to that often asked question is: "Well, that depends......".
What I can tell you is that there is currently a "wild west" pricing environment in China with prices spiking into the teens in USD terms but the price paid in a few spot transaction is not "the price" of lithium carbonate - even in China. I can also tell you that members of the "Big 3" have signed a few full year 2016 contracts in the low $6,000 range; however, most customers around the world will pay substantially more than $6,000/MT for lithium carbonate this year. China will have the highest prices but the rest of the key markets will tend to converge to a narrow price band. The big loser is Korea who used to have a deep discount when compared to their competitors in Japan and China. It seems SQM and Albemarle/Rockwood finally figured out that in a shortage situation there was no longer a need to cave in to LG, Samsung and Umicore's tough talk.
The fact is there is no clear cut "price" for lithium carbonate or lithium hydroxide as we enter 2016.
In the quarter century I have been active in the lithium business I have never seen a bigger spread between high and low prices in the market. The high prices in the China spot market being more than double some contract prices elsewhere in the world. This would seem to be a market ripe for arbitrage but that opportunity is limited in such a small arena.
As you read analyst reports and other "credible" sources - be suspicious of anyone starting a sentence in 2016 with "the current price for battery grade carbonate is...". Much of the pricing that was previously done on an annual basis will gravitate to six month or quarterly pricing which will trend upward until new spodumene and brine capacity comes online.
Regarding hydroxide - the price for hydroxide in China is generally lower than carbonate given the unique situation in that market. Elsewhere I have personal knowledge and in some cases participation in pricing ranging from the low $8,000s/MT to over $12,000/MT.
I have a global average price projection for both carbonate and hydroxide in 2016 but that is not something I publish on Linked In. A person has to make a living.
