Where is the lithium market ahead of the 11th Lithium Supply & Markets conference?

Fastmarkets looks at recent developments in the lithium industry and key topics likely up for discussion at the 11th Lithium Supply & Markets conference in Santiago, Chile, on June 10-12.

Last year, before the 10th Lithium Supply & Markets conference in Las Vegas, various delegates expressed their concerns about possible global oversupply of lithium compounds and the impact of this on lithium prices.

Important to the world’s lithium supply and demand balance as well as to lithium price stability over the past years has been the lithium compound market fundamentals in the domestic market of the world’s single largest producer of cathodes and batteries and over 60% of the world’s production of lithium carbonate equivalent (LCE), China.

The increasing volumes of lithium compounds consumed and produced in China has made the spot prices in this country a proxy for contract negotiations in recent years.

The effects of lower Chinese lithium prices on markets across the globe in the past year have taken their toll on most lithium companies’ first-quarter results in 2019. And although some major producers outside China did not see this coming, lithium price uncertainty has become the norm since the price boom at the end of 2015.

Understanding the dynamics of spot prices in China is today an important tool to make informed decisions and to protect market participants in the lithium space from price volatility.

Lithium prices have fallen in China since the end of 2017 due to the availability of more and cheaper battery-grade lithium compounds in the marketplace, deceleration in consumption after some consumers procured less material than expected in 2019 and slow adoption of state of the art nickel-rich cathodes such as nickel-cobalt-manganese 811 (NCM 811).

Fastmarkets’ battery-grade lithium carbonate, min 99.5%, ex-works China, spot price has fallen by 55.29% to 74,000-78,000 yuan ($10,713-11,292) per tonne on Thursday May 23, from 165,000-175,000 yuan per tonne on December 21, 2017.

Meanwhile, the battery-grade lithium hydroxide monohydrate (min 56.5% LiOH.H2O) spot price has fallen by 42.03% over the same comparison period to 83,000-88,000 yuan per tonne on Thursday, from 145,000-150,000 yuan per tonne.

The current market situation has given pace to a more bearish view of lithium prices due to oversupply while market participants agree that the second demand wave could be two to three years away.

“We anticipate demand hitting the market between 2021-2022 but until then prices are set to stay more on less stable at the current price levels,” a lithium producer told Fastmarkets. “Having said that, what is certain is that price uncertainty has become a characteristic of the lithium industry.”

Building on this market background, Fastmarkets looks at the key topics expected at the 11th Lithium Supply & Markets conference in Santiago.

Hard to ignore China
China is and will remain the world’s single largest converter of lithium spodumene and is set to add lithium carbonate and hydroxide to the global market at a faster pace than other global brine operations while selling this material at a price that will respond to the dynamics of the Chinese market.

According to Fastmarkets analysts, global spodumene production increased to 191,050 tonnes of LCE in 2018, from 59,450 tonnes in 2016 while the world’s brine production totaled 148,400 tonnes of LCE in 2018, up from 140,000 tonnes the year before.

China is also the world’s single largest battery manufacturer with a production capacity of 65% of total global capacity, according to Bloomberg New Energy Finance (BNEF).

Ignoring China and selling material into neighboring Japan and South Korea to achieve higher long-term contract prices might be a short-term measure but unsustainable in the long run because cathode and battery producers are set to procure and find more material available from the Chinese spot market.

A major exporter
China increased its exports of lithium carbonate in the first quarter of 2019 by 432% year on year to 4,810 tonnes of lithium carbonate, from 904 tonnes in the corresponding months of 2018, according to Chinese customs data. Lithium hydroxide exports were also up by 60.7% in the same comparison to 10,016 tonnes in the first quarter of 2019, from 6,232 tonnes.

Rising production from within the country and demand from abroad alongside falling Chinese prices were the main drivers of higher exports. China is set to keep increasing exports and domestic production in tandem. This will maintain the country’s core position as a lithium price setter.

A new procurement strategy
Cathode and battery makers in Asia could follow the example of their Chinese counterparts who combine monthly price negotiations on a spot basis with contract negotiations every three months or once a year to hedge their price risk. This practice has been widely adopted in China due to the competitive prices offered domestically.

In Europe and the United States, consumers of lithium compounds might be more limited in opting to source material at lower prices from China if they have not qualified the material of different Chinese suppliers.

To keep market share against lithium producers with more competitive prices, traditional lithium producers will have to adopt new strategies by combining spot with contract price negotiations. Increased awareness of what is happening in China, the world’s largest market, will also help legacy lithium producers hedge their price risk.

New bottleneck in the industry
Expectations for the fast adoption of NCM 811 cathodes this year has induced the lithium industry to anticipate higher demand for battery-grade lithium hydroxide.

While this is still expected to be the case, issues arising from the use of NCM 811 in car batteries has constrained the mass production of this type of cathode, seeing cathode producers in Asia, mostly China, opting to expand their production of lithium-iron-phosphate (LFP) and lithium-manganese-oxide (LMO) cathodes instead.

The result on the lithium supply chain has been the deceleration in consumption of lithium hydroxide since LFP and LMO producers mostly use lithium carbonate.

Although market participants see this as a temporary bottleneck for lithium hydroxide producers, it has caused an excess of this lithium compound in the market, which will probably harm lithium hydroxide producers in the short term.

In the near term, producers have been debating whether to produce lithium hydroxide or lithium carbonate. For now, lithium carbonate will remain a very important compound for battery producers for many more years.

Speakers will address these topics and more at the conference attended by the world’s top five lithium producers and some of the most important cathode, battery and new energy vehicles producers.

To find out more about Fastmarkets’ 11th Lithium Supply & Markets conference, click here.