Discovering a reflective spot market price for spodumene

Spodumene has come increasingly into focus in recent months following increases in auction activity and broader supply chain interest, as well as volatility in the underlying prices

While the global lithium market evolves and matures, increased attention is being placed on the price discovery process. This is particularly true in markets such as spodumene, a key feedstock in the production of lithium salts.

Production of spodumene has increased significantly in recent years, a trend which is set to continue as new producers and regions enter the market.

Fastmarkets research forecasts that on a lithium carbonate equivalent (LCE) basis, spodumene production globally will total 589,350 tonnes, increasing to 1,369,973 tonnes by 2030.

This compares to production volumes of 142,700 tonnes in 2017, when Fastmarkets launched its spot price assessment for spodumene.

While production and demand have increased, pricing mechanisms have evolved.

As in other lithium products, there has been a widespread adoption of spot market indices as the benchmarks for spodumene, shifting away from the traditional fixed long-term contract pricing model.

This transition to the use of spot pricing as the underlying basis for contracts enables producers and consumers to mitigate against risk, particularly during price cycles.

The volume of transactions and liquidity reported to Fastmarkets for its spodumene price assessment has steadily increased in recent years, while the shift to spot pricing as the basis encourages greater participation in spot price discovery.

But attention has now increased on the need for further transparency in the spodumene price, particularly regarding transacted volumes.

As a result, many producers are now holding auctions for cargos of spodumene with the aim to provide greater transparency.

Role of auctions

Auctions of spot cargos are not uncommon in the commodities trading world.

Producers of materials have often turned to the use of either auctions or trading platforms to support the price discovery process, and such developments have supported the development of transparent spot pricing in markets such as iron ore.

Though fundamentally different markets, the iron ore market went through a dramatic shift in pricing structure over a decade ago when the industry pivoted from annual benchmarks to quarterly benchmarks, eventually evolving into a spot price-driven market structure.

Through a process of transparent declaration of prices achieved from key producers, as well as utilizing trading platforms such as globalORE, the iron ore market was able to develop standardized industry benchmarks which still operate today.

Therefore, similar developments in spodumene could see the market evolve in a similar way.

In recent months, the market has seen multiple auctions for spodumene, achieving varying price levels.

When utilized with full transparency into the details and terms associated, such auctions can act as an excellent basis for broader market price transparency and can form the basis for benchmark pricing.

Once normalized where appropriate, these deals can help form the basis of Fastmarkets’ spodumene min 6% Li2O, spot price, cif China assessment alongside other market data such as bids, offers and assessments from other active market participants.

Role of PRAs

In currently illiquid markets such as lithium, transacted prices form a useful basis for price assessments. But further market feedback and context can provide an important basis for pricing.

In periods of low liquidity, be it due to weak demand or due to seasonal holidays, price reporting agencies (PRAs) can provide important transparency to the market in the absence of traded liquidity.

The ability of PRAs to interact with data such as bids and offers, as well as information heard second hand in the market, can provide greater confidence in a reference price.

Taking iron ore as an example once again, though the shift in pricing mechanisms was market-led and driven by transaction transparency, the benchmark prices forming the basis of contracts are ultimately derived from a PRA.

A PRA’s access to participants across the value chain can ensure maximum participation and representation in the price discovery process, avoiding the potential evolution of producer-led pricing structures.

When analyzing the data behind Fastmarkets’ spot spodumene price assessment in the fourth quarter of 2023 and first quarter of 2024, we can see a significant growth in the number of data points as well as steady growth in contributing companies.

There has also been healthy growth in the number of bids, offers, and transacted liquidity reported to Fastmarkets, highlighting the maturation of the market and the strengthening of reference prices for the industry, along with an increase in frequency of pricing in the fourth quarter of 2023.

Future evolutions

The pricing of spodumene is maturing rapidly in tandem with the broader lithium market.

Fastmarkets has reported on pricing changes in recent months, including the shift toward forward month quotation periods as the industry standard, and the further increase in the use of pricing formulas using payables to lithium salts.

Payables work as a form of valuing a product by using a percentage of another product, such as battery-grade lithium hydroxide or carbonate.

This pricing method is commonplace in other, more mature markets such as cobalt and nickel, though there have been some shifts away in favor of outright pricing in recent years.

Payables remain of growing importance to many in the market, enabling greater connectivity between lithium products, as well as giving spodumene producers exposure to the hedging tools available for lithium salts products.

Eventually spodumene-specific hedging mechanisms could evolve within the market as they have done in lithium hydroxide and lithium carbonate on a variety of international exchanges.

Such a contract could contribute to encouraging greater spot activity with new participants entering the market.

To support further developments in the spodumene prices, Fastmarkets is actively reviewing its specifications and methodology regarding spodumene prices.

The first stage of this development comes in the form of switching to daily pricing for spodumene, facilitating more up-to-date comparisons between spodumene and lithium salts prices.

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