FOCUS: Narrow Asian lithium hydroxide price gap to persist in 2021, sources say

The battery-grade lithium hydroxide price in the seaborne Asian market has been mostly at parity with its peer in the domestic Chinese market during May, with the former closely tracking the latter amid overall tight spot availability in the region.

Fastmarkets’ price assessment of the lithium hydroxide monohydrate 56.5% LiOH.H2O min, battery grade, spot price cif China, Japan & Korea edged higher to $12.50-14.00 per kg on May 13, up by 1.92% from $12.50-13.50 per kg a week earlier.

Fastmarkets’ weekly assessment for the lithium hydroxide monohydrate 56.5% LiOH.H2O min, battery grade, spot price range exw domestic China rose to 85,000-89,000 yuan ($13,218-13,841) per tonne on May 13, up by 3.57% from 82,000-86,000 yuan per tonne previously.

Lithium hydroxide in China’s domestic market traded at around 20 cents (inclusive of China-VAT) higher than in the seaborne Asian market around mid-May, ahead of which both prices had been at parity since late April, according to Fastmarkets’ data. This is compared with a mainstream premium of $2.00-2.50 per kg the seaborne lithium hydroxide price held against the equivalent price in China over 2020.

Since mid-2018, lithium hydroxide import prices in Japan and South Korea have mostly held premiums against the price in the domestic Chinese market because there were limited Chinese producer-exporters accredited by consumers in both countries, even though China is the largest lithium chemical production hub in the world.

This has resulted in comparatively limited supply going from China to its neighboring countries in the past few years, which in return underpinned the overall import prices in two countries in Northern Asia.

In addition, the accreditations for battery manufacturers in Japan and South Korea usually take more time and are more complicated procedures compared with those in China. This added further to the slow expansion of the supplier pool for consumers in Northern Asia, according to market participants.

This was coupled with a general weak tone in the Chinese domestic market since 2018 amid oversupply negativity following the cut to China’s electric vehicle (EV) subsidies, which is one reason for the slower adoption of nickel-rich nickel-cobalt-manganese (NCM) batteries that use lithium hydroxide as feedstock.

China’s domestic battery-grade lithium hydroxide price dropped by over 70% between April 2018 and mid-November 2020, from its historical high of 148,000-153,000 yuan per tonne, according to Fastmarkets data.

Under previous attractive subsidies that encouraged the manufacture of EV models with high driving ranges, original equipment manufacturers (OEMs) in China focused on nickel-rich NCM batteries in their medium-to-high-end pure EV models. Nickel-rich NCM batteries, such as those with a composition of NCM 811 (Ni:Co:Mn: 8:1:1) generate the highest energy density among all NCM batteries, which warrants a longer driving range per single charge.

China leads rally in Asia; Japan, South Korea to follow closely
The dynamics started to change in 2021 after more Chinese lithium hydroxide producers received the accreditations from Japanese and South Korean consumers to export material to those countries.

China exported at total of 15,980 tonnes of lithium hydroxide in the first three months of this year, up by 56.33% compared with 10,222 tonnes in the same period last year, according Chinese customs data, with Japan and South Korea the major destinations.

Meanwhile, the overall supply of lithium hydroxide tightened in China due to a loss of raw material supply. The supply of spodumene, the upstream feedstock for majority lithium converters in China, has been constrained since the Altura project in Australia was put on care and maintenance in 2020. Pilbara Minerals, who acquired the asset, is still undertaking work to determine its future operating strategy.

The upstream support will continue to fuel the momentum in China, market participants noted, adding that China will lead the rally in Asia, but the market will not see big gap in prices in Asia due to robust demand from East Asia.

“Chinese domestic lithium price will be similar to those in Japan and South Korea on a cif basis,” a consumer said. “The demand dynamics is quite different from previously.”

Optimism for demand for nickel-rich NCM batteries has simmered in the past few years, but it is expected to really take off in 2021 and in subsequent years due to the ambitions of European countries to electrify transportation, with several planned models designed to be equipped with nickel-rich NCM batteries, market participants told Fastmarkets.

“The ramp-up in EV demand in Europe will be using [nickel-rich] NCM batteries and most of those battery cells will be made in Asia and there is capacity growth in China, hence there has been strong demand for lithium hydroxide,” head of Fastmarkets battery raw materials research William Adams said.

“Global nickel-rich battery demand is expected to speed up this year due to strong EV sales growth in the European market. China’s main nickel-rich NCM cathode producers are doubling their production and aiming to reach demand in the European and US market,” Vicky Zhao, Fastmarkets battery raw materials senior analyst said. “NCM 811 cathode production in China is expected to increase to 30% this year from 20% last year.”

“The parity in Asian prices is likely to persist throughout 2021, with Japanese and South Korean import prices tracking China closely,” a producer said. “[Consumers in Japan and South Korea] have to secure units with competitive purchase prices.”

“I think Chinese [hydroxide] domestic prices move quicker than the equivalent seaborne Asia prices as the Chinese ones are generally tied to shorter-term contracts and are therefore more volatile while seaborne Asia prices are tied to longer-term contracts which are generally more stable,” an upstream source active in China and seaborne Asia markets said.

“I think in general seaborne Asia prices will continue to strengthen over the course of 2021 but Chinese prices will not necessarily; they are always at a discount to the former,” the same source added.