Weaker price environments have been a consistent trend across the lithium industry in the last six months of 2023, with improved availability of supply and softer demand pressuring lithium hydroxide and carbonate prices to their lowest levels since 2021.
At the same time, spodumene prices have also softened to their lowest levels since 2021.
“The problem with lithium is that it is not a market that can absorb oversupply like other battery metals like nickel or cobalt,” one market participant told Fastmarkets, noting that in other oversupplied markets “traders can step in and hedge their positions.”
This leaves lithium more vulnerable to significant price declines.
Fastmarkets assessed spodumene min 6% Li2O, spot price, cif China at $1,000-1,200 per tonne on Friday December 8, down $200-300 from $1,200-1,500 per tonne in the previous session.
Spodumene prices have fallen by around 86% since the start of 2023 but the rate of decline has been particularly acute in recent months with prices dropping by 71% since June 8.
This downward trend could be set to continue with the market entering a seasonally weak period for prices and demand. Some market participants expect the bearish trend to continue well into 2024.
“I expect the downward trend to continue well into the new year; I’d estimate at least another six months,” the market participant said.
Spodumene prices are increasingly being linked to lithium chemicals prices with new pricing formulas emerging in recent months for long-term contracts, including changing the quotational period, QP, from backwards looking (M-) to forward looking (M+).
These discussions over QPs come at a time when some participants and the lithium market have begun to increasingly employ a payable pricing mechanism, directly linking the price of spodumene to either lithium carbonate or hydroxide prices.
The shift of spodumene’s pricing mechanism, including the QP and the link to lithium salt prices, favors lithium producers in a downward market and market participants took this shift as a concession from the spodumene miners amid pressure from overall lithium weakness.
In fact, a number of market participants pointed to the recent sharp declines in hydroxide and carbonate prices as a driving factor in spodumene prices moving lower.
Fastmarkets assessed the lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea at $16-17.50 per kg on Monday, narrowing downward from $16-18 per kg the previous day.
The assessment of lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea fell to $15.50-16.50 per kg on Monday, down 50 cents from $16-17 per kg on Friday.
The domestic China market also recorded significant price declines
Fastmarkets assessed the lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range exw domestic China at 90,000-100,000 yuan ($12,600-14,000) per tonne on December 7, down from 106,000-125,000 yuan per tonne the previous week.
“We heard of very aggressive offers made the past week in China for lithium carbonate,” a second participant told Fastmarkets, noting that “it seems that Chinese producers are destocking and preparing for the new year period.”
“I believe that there will be no sign of a short-term recovery at least until after Chinese New Year in mid-February. Perhaps some restocking could take place in [the second quarter],” the second market participant said.
Amid such bearish sentiment and pessimistic outlook, spodumene demand has shrunk significantly over the past few months.
“Lithium demand is extremely weak globally leading to tepid demand for spodumene. With the expectation that lithium prices can still trend downward, I don’t see any need for lithium refineries to purchase more spot spodumene,” a Chinese lithium trader said.
“But if there’s any buying interest, the buyers will try to push the spodumene prices to a very low level as they expect the weak lithium prices to continue,” the trader added.
Continued declines could pressure producers
Concerns are now emerging within the market that should the recent rate of price declines continue, the market could soon witness some production curtailments or the stalling of new projects expected to come online.
“Whether it will have an impact on new projects coming online or existing projects from expanding I think it depends how much prices will continue to fall,” the first source said.
“I would say that if prices fall below $12 per kg, this would be the breakeven point for a low-cost spodumene project to stop making money. For some other smaller projects with higher costs, the breakeven point could be even higher,” the source added.
But despite some concerns over production disruptions, the lithium market is forecast to remain well supplied going into 2024.
Fastmarkets forecasts a surplus of 3,800 tonnes of lithium carbonate equivalent (LCE) in 2024, with demand at 1,210,700 tonnes of LCE and supply at 1,214,500 tonnes of LCE.
“So far there has still been no spodumene supply response so the market is well supplied against a backdrop of tepid and conservative approach from convertors,” a producer source told Fastmarkets.
“The miners are expected to adjust their sales tactics according to downstream demand,” Fastmarkets analyst Vicky Zhao said.
“Currently the miners have enough capital and won’t lower production, but the future capacity ramp-up among miners will be delayed,” Zhao added. “As long as spodumene prices can support the miners to run their operations, production of new spodumene projects won’t so easily be reduced,”
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