Strong lithium demand pushes move to market-based pricing
Global lithium spot prices have posted strong gains over the year, underpinned by robust demand from the global uptake of e-mobility and the scramble to secure the relevant raw materials
This price rise and increase in demand has been supporting the shift to a market-based pricing mechanism in lithium contract negotiations from key incumbent suppliers, something they reiterated in their recent earnings’ updates.
The lithium market has been historically dominated by long-term contracts based on a fixed price negotiated between seller and buyer. But the uptrend in prices over recent years alongside the unpredictability of future lithium prices has prompted a shift along the lithium value chain to a pricing mechanism based on more transparent and up-to-date supply-demand dynamics.
“Data demand has been exceptionally strong throughout this year. And published lithium prices in all forms have continued to move higher, reflecting very tight market conditions,” Paul Graves, president of US-based lithium miner Livent, said.
“Livent has been able to take advantage of this by realizing higher prices on a subset of its volumes that are exposed to market prices,” Graves said. “We are confident in those environments not changing for the rest of the year.”
Regarding the future contract structure of upcoming, uncommitted new lithium supply, Graves said. “I personally believe the day of the fixed-price contract has been killed by the last 12 months.”
“I don’t think anybody’s renewing their contract on fixed prices. I think caps and collars will have a bigger role to play,” he added, referring to loans with upper and lower interest-rate limits. “But there’ll be a lot of flexibility of market price movements within caps and collars.”
Similarly, US-headquartered lithium major Albemarle Corp reiterated in its third-quarter financial update its commitment to a market-based pricing mechanism, given the strength in lithium prices.
“Lithium continues its stellar performance. We maintain our expectation for the lithium segment’s full-year 2022 adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] to be up more than 500% year over year as strong market pricing flows through our index-referenced variable price contracts,” Scott Tozier, Albemarle chief financial officer said, adding that “pricing growth is expected to be 225% to 250% year over year.”
During the recent London Metal Exchange (LME) Week held in London at the end of October, most market participants across the lithium value chain spoke of the increased unpredictability of lithium prices as compared with other battery raw materials needed for the energy transition, such as cobalt and nickel.
Lithium market prices surged last year following the multi-year lows of 2020. The ultralight metal entered a new bullish cycle, supported by high demand for electric vehicle (EV) batteries. This supported a price uptrend across the whole lithium industry, 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 and Korea was $80-82 per kg on Friday November 11, up by 102.5% from the beginning of 2022.
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