Opportunity knocks for traders with the surge in lithium prices

Growing demand and a surge in prices are making the lithium market environment increasingly attractive for commodity traders

Until recently, the lithium space was mostly characterized by a notably small number of intermediaries and relied mainly on direct seller-buyer interactions. But the surge in the prices of lithium compounds, as well as the expected growth in demand across the lithium complex in the coming years, are creating new opportunities for intermediaries.

This has been particularly evident in the domestic Chinese market, where spot liquidity has historically been more relevant than in other regions, with an established and active spot market.

Market prices surged last year following the multi-year lows of 2020 – the commodity entered a new bullish cycle supported by high demand for electric vehicle (EV) batteries. This supported a price uptrend across the lithium complex, including technical grades, battery grades and spodumene concentrate feedstock.

Fastmarkets’ price assessment for lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea, was $44-47 per kg on January 27 this year, rising by 574% from $6.00-7.50 per kg in January 2021.

The assessment for lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea, was $41-43 per kg on January 27, an increase of 366% at the mid-point from $8.50-9.50 per kg a year earlier. The rally was triggered by a rapid change in direction in Chinese domestic lithium prices.

The fast-paced growth of the market, together with underlying demand trends, led to carbonate overtaking hydroxide and trading at a premium. The growth story also highlights a market where traders can identify new business opportunities.

This has been particularly noticeable in the carbonate market due to its larger share of the total lithium market (carbonate accounted for about 65% of total lithium production in 2021) compared with a smaller, but growing, hydroxide market (32% of total production in 2021, with other lithium salts making up about 3%).

In previous years, the few intermediaries active in lithium used to limit themselves to handling spodumene. But with the entire complex poised for strong growth, commodity traders are increasingly interested in the downstream lithium chemicals market.

Carbonate has fewer logistics complexities than hydroxide, sources in China acknowledge; this allows for it to be easily interchangeable among participants across the supply chain. Additionally, the booming carbonate market in China also led to material with low-grade specifications entering the battery supply chain for certain entry-level applications.

In the market environment outlined, this means lithium carbonate as a product lends itself better to the intermediary activity of traders than hydroxide. This, however, is set to evolve while battery demand expands outside of China, where different battery chemistries and OEM strategies are likely to prompt growth of the overall size of the hydroxide market.


The increased presence of traders in lithium is one element in the “commoditization” narrative that was a topic debated a few years ago – market participants and observers were split between those who considered lithium a pure specialty chemical or a commodity. While the industry has since moved on, that debate remains relevant to understanding the sector today and its continuing evolution.

The lithium market’s strong demand growth prompted a tightening of product specifications and brought about increasingly strict quality parameters in response to requirements by large consumers, such as OEMs. Supply of new compounds was established with those higher quality parameters – in effect, enforcing a new standard.

In carbonate, that led to units being more homogenized in terms of product quality, making them more interchangeable across the market, with consumers less tied to one producer’s specifications.

While the sector may continue to be considered a specialty chemicals business overall (including the specialty, non-battery grade applications), some components of the market have increasingly behaved like other commodities. Lithium carbonate has moved in this direction, attracting commodity specialists such as traders.

“When a market is growing rapidly, when consumers are scrambling for material and prices are all over the place, then opportunities for traders emerge,” William Adams, head of battery materials research at Fastmarkets, said. Some market participants suggest the involvement of traders has partially contributed to this year’s price rally in lithium in the domestic Chinese market, which eventually filtered through to other regions.

“Through the past year this has been happening: there were traders withholding stocks and then releasing it to the market,” one converter source said, adding that the current tightness means that strategy is now less evident. “Most of the traders that I work with have limited stocks on hand now,” he added.

“Commercial arms of big producers” rather than fully established traders have become more active in the past year, especially in China, a Europe-based trader suggested. “I don’t think traders have been squeezing the market in China but [rather] big producers have been holding inventories [to support price growth],” he said.

Traders’ engagement in lithium is showing instances of direct involvement with new projects, providing expertise and trade finance.

In December, Traxys and start-up European Lithium said they will cooperate to develop the Wolfsberg Lithium Project in Austria, where the junior is seeking to set up a lithium hydroxide operation by the end of 2023.

Around the same time, Traxys also signed a multi-year offtake agreement with Canada-headquartered junior miner Lepidico. The trader will provide sales, marketing, logistics and trade finance services for 100% of the initial phase of the company’s lithium hydroxide production, which is expected to come online in 2023.

The development of financial instruments such as derivative futures contracts, which have been launched by several commodity exchanges to provide tools to participants in the battery raw materials supply chain, to manage price risk, will also benefit traders.

The Singapore Exchange (SGX) is looking to launch four futures contracts – for cobalt metal, cobalt hydroxide, lithium carbonate and lithium hydroxide – in the first half of 2022 to provide new hedging instruments for market participants involved in energy transition, it said earlier this year.

“The combination of fast-moving prices, concern about supply and the emergence of traders,” Adams said, “is likely to increase the need for risk management tools such as exchange-traded futures.”

To understand more about risks to the battery raw materials market, read our recent BRM risk outlook report and view the Fastmarkets battery raw materials risk matrix.

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