Before 2016, as much as 65% of the world lithium end-user market comprised traditional sectors including the ceramics, glass, greases and air-treatment industries, while the battery sector made up the remaining 35%.
But by 2026, these proportions are likely to reverse, with the battery sector expected to make up almost 65% of the end-user lithium market, according to Industrial Minerals' outlook report.
This trend is largely supported by the persistently strong production of new energy vehicles (NEVs) and sales growth in the market hub of China, Japan and South Korea - led by China. In 2017, production growth in NEVs was 53.8% while sales grew by 53.3% year on year, according to the China Association of Automobile Manufacturers (CAAM).
The booming electric vehicle market in China, alongside production of lithium battery compounds in the country, has led it to develop a more dynamic spot market in recent years. Hard rock in the form of lithium spodumene (Li2O), and more recently direct shipping ore (DSO) produced in Australia, are at the core of this market transformation - these materials allow Chinese convertors to buy raw material from a closer source instead of getting lithium from as far away as Chile, Argentina or the United States.
Since China produces lithium compounds domestically and is the world center of electro-automotive production, with an important portion of the world’s production units for electric car cathodes and batteries, the perfect market conditions have emerged for the creation of a more dynamic market.
This has prompted lithium producers and consumers in China to trade lithium carbonate (Li2CO3) and hydroxide monohydrate (LiOH.H2O) not only on a contract basis but also on the spot market.
Geographic proximity between lithium producers and consumers in China led the Chinese market to unparalleled high prices at the end of 2015, a phenomenon that was also promoted by the generous subsidies given by the Chinese central government to the electric vehicle industry. This was part of the 2015 13th Five-Year Plan and was intended to produce 5 million NEVs by 2020.
In turn, this produced a spike in the price of lithium carbonate (Li2CO3), raising it to $27 per kg in June 2016 from $7.70 per kg in October 2015, according to Industrial Minerals market assessments.
Since then - and due to the rapidly growing importance of China as the world’s principal NEVs manufacturer and as a major user and producer of lithium compounds, with a booming lithium spot market - the domestic Chinese spot prices for lithium (Li2CO3) and hydroxide monohydrate (LiOH.H2O) have been seen by the lithium industry as the drivers of the world’s contract and spot prices. They are now used as a reference by lithium producers to set up their contract prices.
"The rise in the Chinese lithium carbonate and hydroxide spot prices has been affecting contract price negotiations in China and across the world," a China-based manufacturer of EVs manufacturer told Industrial Minerals.
"[This is] due to the fact that China produces lithium domestically as well as being a major lithium consumer, and having as a consequence a more dynamic spot market in which we often see electric-car cathode or battery makers buying material on a spot basis," he added.
"The increase in lithium market prices in recent years has been a nightmare for many, and [gaining] transparency is important. It will help us to understand lithium prices and the market, because the lithium carbonate spot price has grown threefold since the end of 2015," he said.
New prices for lithium carbonate, hydroxide monohydrate
Over the second half of 2017, Industrial Minerals launched new spot price assessments for lithium carbonate (Li2CO3) and hydroxide monohydrate (LiOH.H2O) ex-works China to track the growing volatility in lithium prices in China.
But additional stratification was required to cater for battery-grade lithium used in Li-Ion batteries and separately for the technical and industrial grades used in the traditional end-markets such as the ceramics, glass, greases and air-treatment industries.
Historically, battery grades of lithium carbonate (Li2CO3) and hydroxide monohydrate (LiOH.H2O) have held a stable premium price of $1.00-1.50 per kg against the technical & industrial grades. Meanwhile, lithium hydroxide monohydrate (LiOH.H2O) held a stable premium of $1-2 per kg when compared with the lithium carbonate (Li2CO3) prices, according to data collected by Industrial Minerals since the launch of the new prices.
The price differential between battery and technical & industrial grades of lithium comes not only from the differing demand fundamentals of their respective end-users markets but also from the purity of the material and the different production costs - not all of the lithium carbonate (Li2CO3) and lithium hydroxide monohydrate (LiOH.H2O) that is produced can be used in batteries.
Lithium carbonate (Li2CO3) technical & industrial grade is typically composed of a minimum of 99% lithium carbonate while battery-grade material not only has a minimum of 99.2-99.5% lithium carbonate but also has a reduction in trace impurities such as magnesium (Mg), sodium (Na) and potassium (K). It therefore requires further processing so it is more expensive to produce.
Meanwhile, both technical & industrial and battery grades of lithium hydroxide monohydrate (LiOH.H2O) are typically composed of a minimum of 56.5% lithium hydroxide. But the battery-grade material contains fewer trace impurities such as carbon dioxide (CO2), chloride (Cl) and sulfate (SO4), and others so again it requires further processing and is more expensive to produce.
"We can spend [about] $1.00-1.50 [per kg] to convert lithium carbonate into lithium hydroxide monohydrate, or spend $1 [per kg] to enhance lithium carbonate or hydroxide monohydrate technical or industrial into battery grade [by reducing impurities]," a lithium producer told Industrial Minerals.
The historic structure of the lithium market, seen alongside the recent fundamental market changes in the lithium industry, pushed Industrial Minerals, with the support of lithium producers and consumers, into a more granular approach to price discovery and assessment for the different lithium compounds throughout 2017.
This has led to a more robust price discovery process for the lithium raw material used in the production of Li-Ion batteries, which are used in some of the most common electric vehicle battery cathodes (such as NCM111, NCM622 and NCM811), while also following price evolution in the traditional end-user markets for the technical and industrial grades of lithium.
As a result, in November 2017, Industrial Minerals launched new spot price assessments for lithium carbonate (Li2CO3) and hydroxide monohydrate (LiOH.H2O) ex-works China (as shown in the table below) to reference the growing lithium price volatility within the Chinese spot market.
These assessments quantify the price differential which exists between the battery grade lithium used in Li-Ion batteries and the technical & industrial grade material used in other end-markets such as ceramics, glass, greases and air treatment.
Lithium carbonate min 99% Li2CO3 technical and industrial grades, spot prices ex-works domestic China, yuan/tonne
Lithium hydroxide monohydrate min 56.5% LiOH2O technical and industrial grades, spot prices ex-works domestic China, yuan per tonne
Lithium carbonate min 99.5% Li2CO3 battery grade, spot prices ex-works domestic China, yuan/tonne
Lithium hydroxide monohydrate min 56.5% LiOH2O battery grade, spot prices ex-works domestic China, yuan per tonne
Lithium carbonate min 99% Li2CO3 technical and industrial grades, spot prices cif China, Japan & South Korea, $ per kg
Lithium hydroxide monohydrate min 56.5% LiOH2O technical and industrial grades, spot prices cif China, Japan & South Korea, $ per kg
Lithium carbonate min 99.5% Li2CO3 battery grade, spot prices cif China, Japan & South Korea, $ per kg
Lithium hydroxide monohydrate min 56.5% LiOH2O battery grade, spot prices cif China, Japan & South Korea, $ per kg
Using the same reasoning, in July 2017 Industrial Minerals launched contract and spot reference prices for lithium carbonate (Li2CO3) and hydroxide monohydrate (LiOH.H2O) cif China, Japan & South Korea - as also shown in the table.
These prices assess the lithium price movements in the electric-vehicle production hub of China, Japan and South Korea, into which most of the world’s lithium production currently flows. They also capture the trades between these three countries, which are of great relevance to the lithium industry because of the growing capacity in the region and the internal trade there.
In July 2017, Industrial Minerals also launched contract and spot reference prices for lithium carbonate (Li2CO3) and hydroxide monohydrate (LiOH.H2O) for Europe and the United States* on a delivered duty paid (DDP) delivery basis. These assessments separate battery grade material from the technical and industrial grades.
"The new Industrial Minerals lithium prices bring more transparency to a market that is considered by many to be a 'black box’, helping my customers to understand lithium price movements in recent months," a second lithium producer told Industrial Minerals.
"These prices help us to track the European and US markets but also to monitor the Chinese domestic lithium spot prices, which we use as a reference to set our prices in Europe and the US or China," he added.
As well, in August 2017 Industrial Minerals changed the previous lithium spodumene (LiO2) specifications and prices by taking into account producers’ and consumers’ criteria to represent this market better.
"The Metal Bulletin pricing mechanism enables our team, composed of price reporters and price developers, to capture the relative values of the markets in which we are involved through a strict and IOSCO-compliant process," Jon Mulcahy, price development manager at Metal Bulletin, explained.
"Although the lithium market is rapidly evolving, Metal Bulletin has positioned itself with unique coverage, enabling it to provide valuable insight into what was a relatively opaque field," he added.
"By employing a robust, tried and tested methodology, we are able to ensure that we produce an impartial and balanced view of the rapidly developing battery sector. We are also currently involved in coverage of other battery raw materials, such as nickel and cobalt, to provide a holistic view of the segment," he said.
The new prices will provide more robust price discovery for the raw materials used by the makers of the Li-Ion batteries used in some of the most common electric vehicle cathodes. They will also will keep Industrial Minerals well placed to forecast increases in lithium demand and prices affecting the battery sector in 2018.
*All lithium carbonate and hydroxide prices are available in Industrial Minerals’ Battery Price Report.
By Martim Facada. This article was first published in Industrial Minerals.