Lithium Prices, IOSCO, and exchange traded lithium: the rush to join the lithium pricing industry Benchmark Mineral Intelligence
7 days ago
Processing lithium carbonate in Argentina
Q&A with Benchmark Mineral Intelligence’s Managing Director, Simon Moores, on assessing lithium prices, the role of IOSCO and the rush to join Benchmark in the lithium pricing industry.
Benchmark’s MD, Simon Moores addressing Melbourne, Australia on lithium prices and the EV supply chain (September, 2018) A trend of late has been the emergence of the “PRA”. Why is every commodity publisher keen to be seen as this?
The past two years have seen a number of commodity publishers rebrand themselves as Price Reporting Agencies (PRAs). In essence, it has become a term for any publisher that regularly reports commodity prices. It has been used in an attempt by publishing houses to set themselves apart from other competitors that produce just information rather than price data. In reality, it is a term that has been created internally by the commodity publishing industry that means little to the lithium industry. What is IOSCO, how does it relate to lithium and is it important?
IOSCO (International Organization of Securities Commissions) is an organisation that has created a set of principles for the oil reporting agencies to follow after a series of accusations of market manipulation. The offices of three price reporting agencies were raided in 2013. Those publishing metals and minerals prices knew very soon that the spotlight would be on them, particularly as many prices were collected in a journalistic way that had not changed for many years. The Principles for Oil Price Reporting Agencies was created in 2012 by IOSCO and is what commodity price publishers use today as the guidelines to become IOSCO certified. This certification is verified by external auditors which provide assurances on a PRAs level of compliance. IOSCO’s principles were not designed for the lithium industry. They are designed by the financial industry, for the financial industry to give greater confidence and minimise the risk of price manipulation. In large, it is for commodity exchanges, traders and other third parties that sit outside of the supply chain.
Benchmark Mineral Intelligence was summoned to testify at the US Senate in 2017 on lithium prices and energy storage supply chains Does IOSCO guarantee accuracy and validity of lithium prices?
The long and short answer is no. IOSCO does not assess the quality and accuracy of the lithium pricing. Quality and accuracy of lithium pricing is purely down to the credibility of the publishing business setting the lithium prices and the experience of the analysts collecting the price data. The reason Benchmark Mineral Intelligence has gained such a leading position in the industry is a result of both of these factors. Creating a lithium-specific methodology in 2014 that was based on IOSCO principles, and that is strictly adhered to, was an added benefit to the most critical components of price assessing: expertise, contacts and effort. For other publishing companies that are now attempting to collect lithium prices, IOSCO compliance is the end game. For us at Benchmark, it is an added bonus. IOSCO compliance is the natural evolution of our Lithium Price Assessments which are already used by the lithium ion battery supply chain to discuss and negotiate contracts. Confidence in Benchmark’s lithium price data, together with the most recognised and trusted brand in the space, and critically, analysts that travel the world and meet the supply chain, have all been key contributing factors that have made Benchmark Minerals the lithium industry’s reference price. Benchmark Mineral Intelligence has engaged an external auditor to get the official IOSCO compliance stamp by Q1 2019.
Benchmark’s Lithium Prices on the Bloomberg Terminal. We also provide data to Thomson Reuters and one other major commodity data provider. What does limited assurance, reasonable assurance or type 1 assurance actually mean?
There are a number of impressive sounding assurances or stamps that accountancy firms can give to commodity price publishers. The first is Limited Assurance. EY defines this as:Provides negative assurance on the ‘description’ and ‘operating’ effectiveness of the designed control procedures that related to the administrators specified control objectives aimed at complying with the IOSCO’s Principles for Financial Benchmarks. The second, more expensive stamp of approval is, Reasonable Assurance, defined by EY as: Provides positive assurance on the ‘description’, ‘design’ and ‘operating’ effectiveness of the control procedures that relate to the administrators specified control objectives aimed at complying with the IOSCO’s Principles for Financial Benchmarks. To be clear: both of these assurances are defensive in their approach with the accountancy firms not legally culpable for any misjudgment. What they do offer is a professional opinion at either a point in time – known as Type 1 – or a professional opinion over a period of time, known as Type 2. If reasonable is the best type of assurance you can get, the lithium industry is well within its rights to question whether IOSCO is a strong enough approach. This is one fundamental reason why IOSCO sounds good on paper but is nowhere near a reliable enough rationale to use when gauging the quality of lithium prices. How prices are collected – sticking to a methodology that is robust and transparent – is absolutely important, but whothese prices are collected from and the assessment part of the process are the most critical steps. Lithium experience and relevant contacts become crucial. This is why IOSCO will always be nice to have but never a deciding factor for a speciality chemical and mineral such as lithium. Understanding the lithium market and being ever-present in the industry will always trump IOSCO compliance. What is a lithium reference price?
Benchmark Mineral Intelligence provides the lithium industry’s reference price. This is any lithium price that is used as a starting point to discuss or negotiate lithium prices in contracts. This is a crucial step in becoming a benchmark price, the goal of Benchmark Mineral Intelligence from when it was founded in 2014.
Benchmark was invited to guest lecture at the University of Oxford twice in 2017 and will return in October 2018. Also pictured: Benchmark World Tour 2018 and a lithium site visit. What is a lithium benchmark price?
A lithium benchmark price is when an independently discovered market price for lithium is then written into a contract and used as a metric to set that specific lithium price for that contract. For example, a deal between a producer and a consumer may use Benchmark Minerals’ CIF Asia Lithium Hydroxide, min.55.0% LiOH, in a long-term contract as a starting point. They would then agree a price tied to this Benchmark Minerals base price with a negotiated premium/discount. One of the main reasons for this is varying qualities of lithium products and impurities that may command a lower or higher market price. This is ultimately what Benchmark Minerals’ Lithium Price Assessments have been designed for.
Benchmark’s lithium analysts regularly travel the world to meet the lithium ion battery supply chain. What are the most critical factors to a successfully assessed lithium price? Contacts, expertise, and effort. Benchmark Mineral Intelligence invests heavily in all three of these tiers to ensure we remain the lithium industry’s reference price and most trusted publication in the supply chain. Contacts are vitally important for obvious reasons. You firstly need to be speaking with relevant actors in the lithium industry – both on the supply and demand side of the equation – to get an accurate picture of what is going on. To cultivate these contacts takes years – and in our belief careers – of focusing on the industry. This is needed to build the relevant trust between all parties: Benchmark has to be as useful to the price contact as the price contact is for Benchmark. Over many years this process becomes a mutual relationship of information exchange that creates a series of data points for Benchmark. These data sets then need to be analysed and this is where experience comes into play. Traditional publishing houses or PRAs do not have lithium experience.
They rely on their IOSCO compliant methodologies – a generic process for many commodities they cover – to remain relevant to the lithium industry. Benchmark has a team that has been specifically focused on lithium for a time period which spans years to careers. This is crucial as you need to be able to analyse the price data point and ask the questions: is it trustworthy and how does it correspond with what we have heard from other parts of the market? Is it in line or an outlier compared with other data points we have collected that month? Will it stand up to market scrutiny? The layers required to successfully assess lithium prices. Download chart here.
The confidence and knowledge needed to conduct this process cannot be underestimated.
It is the real reason why all other publishers fall short in the lithium industry. Because we are so specialised at Benchmark – only collecting lithium ion battery price data for lithium, graphite anode and cobalt – we have the most analyst-hours by far focused on collecting lithium prices and continue to hire. Finally, effort and resource is the engine that keeps all of this working. Benchmark invests significantly in travel to meet the entire supply chain on a regular basis. Nothing can replace face to face contact with the industry – something that is seen by many publishers as an expense and as a skill of a bygone era. The Benchmark World Tour, which this year spanned 15 cities, acts as a superb anchor for this contact but it is the travel outside of the tour which is what outsiders to lithium do not see. You cannot collect accurate lithium prices by being a desktop analyst. Why has there been so much noise around lithium prices in the past 12 months?
The rising interest of the London Metal Exchange (LME) has woken up the larger publishing houses to lithium’s potential. Goldman Sachs declaring lithium as The New Oil created many headlines and sparked a race to become the chosen price for the LME cash-settled contract, which is expected to launch in 2019. The chosen price is seen as an ideal stamp of approval for those seeking to enter the lithium space. The reality is the LME is just the start, not the end. The LME has been clear and public with its goal of creating the first exchange-traded lithium contract. There are, however, other exchanges heading in the same direction. The question of whether lithium can be financially traded is one that will be answered in the next two years. But there is no doubt that exchange-traded materials are the next logical evolution in markets that are growing as quickly as lithium. With such investor demand for pure play lithium exposure, and a need from the electric vehicle and battery manufacturers to be able to hedge risk, lithium is entering a new era. All major publishers have realised they are late to this new era and have quickly launched lithium prices and coverage in an attempt to be relevant and be involved. Alarm bells should ring when any publishing companies are giving their lithium prices away for free.
Benchmark Mineral Intelligence charges premium prices for premium information that is used to negotiate contracts. Our Lithium Price Assessment is our number one service and has grown to become the lithium industry’s reference price. And the industry pays good money to receive the best information.
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