One week ahead of Ganfeng’s initial public offering (IPO), which is intended to raise $676 million in a Hong Kong share listing, the companies signed a five-year supply agreement, with the possibility to extend it for an additional three years.

Ganfeng will supply a variety of lithium compounds for battery and cathode manufacturing, according to BMW requirements, at the market price.

Although the companies have not commented about the market price established, the lithium spot market in China has been on a downward price trend over the past 10 months. This is threatening to soften the contract and spot prices in the rest of the world.

Fastmarkets last assessed the Chinese domestic spot price for battery-grade lithium carbonate, min 99.5% Li2CO3, at 78,000-82,000 yuan ($11,337-11,919) per tonne on Thursday September 27. This was down from 170,000-180,000 yuan on November 23 last year.

Meanwhile, the price for battery-grade lithium hydroxide monohydrate, min 56.5% LiOH.H2O, was 110,000-125,000 yuan per tonne on September 27, also down from 142,000-150,000 yuan per on November 23, 2017.

“Expected rapid growth in [the production of] new energy vehicles [NEVs] and battery storage means that demand for lithium will keep growing at a fast pace,” William Adams, head of base metals and battery materials research at Fastmarkets, said on Monday October 1.

“Lithium prices have been under pressure so far this year, with a concerted supply response under way, and we expect that to continue over the rest of the year and in 2019,” he added.

“Looking further ahead, it will be hard for raw material supply to keep up with that rate of demand growth when EVs [electric vehicles] and ESSs [energy storage systems] are mainstream,” Adams said. “That is why offtake agreements between tier-one NEV makers and lithium suppliers have become more common, as seen with BMW, LG Chem and Tesla, to name a few.”

Ganfeng has recently agreed other partnership deals with key stakeholders in the battery supply chain, such as LG Chem and Tesla. It also announced a plan to invest in expansion of its lithium hydroxide production capacity.