Lithium spot market growing amid tight supply

A growing spot market for lithium — traditionally dominated by offtake deals and contract pricing — will have an increasingly important role to play in the overall lithium raw material supply chain, which is struggling to match surging demand in the downstream sector.

While prices for hard rock lithium concentrate (spodumene) are driven by pricing trends in the downstream hydroxide and carbonate markets, rising trades in the spot market are expected to influence term contract negotiations.

Argus assessed prices for 99.5pc grade lithium carbonate in a $27,145-27,921/t ex-works China range on 6 October, more than double the price of $13,727/t on 6 April. Prices for 56.5pc grade lithium hydroxide were assessed at $26,370-$27,145/t ex-works China on 6 October compared with $11,556/t on 6 April.

This surge in downstream prices has had a major impact on upstream prices, with some spodumene producers reducing the terms of their offtake contracts and increasing spot market sales. Spodumene for November-December delivery is expected to be priced around three times higher than in mid-2020 when the lithium downturn bottomed at under $500/dmt. Clearer details on pricing will emerge in late October when producers release their quarterly production and sales reports.

A major proponent of the spot market is Australian spodumene producer Pilbara Minerals, which recently surprised market watchers with the success of online auctions for concentrate cargoes through its Battery Materials Exchange (BMX).

Across a three-hour bidding window in July and a two-hour bidding window in September, 110 bids were received from 30 independent buying groups. Only 18,000dmt of material was sold at the two auctions — 10,000dmt for $1,250/dmt fob in July and 8,000dmt for $2,240/dmt fob in September — but Pilbara thinks the average price of $1,745/dmt and the quantity of bids signal a strong future for online auctions to support the spot sales market.

Its chief executive Ken Brinsden said earlier this year that around 30pc of its spodumene sales could come from the spot market, complementing its offtake contracts with Chinese downstream lithium converters such as Jiangxi Ganfeng Lithium, General Lithium and Yibin Tianyi. Pilbara has issued output guidance of 460,000-510,000dmt for its July 2021-22 fiscal year, with higher production and sales likely in 2022-23 on increased capacity.

Significant in future spot sales is Pilbara's Ngungaju plant currently being commissioned for concentrate production starting in the first quarter of next year. It should reach its capacity of 180,000-200,000 dmt/yr by June.

"With market conditions remaining extremely buoyant and the spodumene concentrate market continuing to show signs of being extremely short of supply, the Ngungaju plant is expected to be capable of delivering uncommitted tons into the emerging spot market through the BMX platform," Brinsden said.

"We think this will be a very positive development for the overall market, increasing traded volumes, transparency and ultimately supporting the growth of the lithium raw material supply chain globally."

It is not only spodumene producers eyeing spot market opportunities. Perth-based but Argentina-focused Galan Lithium thinks high-grade lithium-chloride concentrate from its Hombre Muerto West lithium brine project could find a global market as a feedstock for downstream lithium-ion battery products.

By Angus Macmillan