Is the spot market for spodumene is influencing contractual negotiated pricing?

By Dalila Ouerghi and Susan Zhou, lithium editors for Fastmarkets

Bids for SC 5.5% units reached a high of $2,240 per dry metric tonne (dmt), fob Hedland, during the Australian miner’s second spodumene auction on its Battery Metals Exchange on Tuesday September 14. The price was approximately equivalent to $2,500 per dmt on a cif China basis, market participants noted.

Pilbara Minerals further disclosed on September 29 that four individual groups bid more than $1,750 per dmt in the auction.

Fastmarkets’ assessment of spodumene min 6% Li2O, cif China, was $2,000-2,500 per tonne on September 30, up by 91.49% from $1,050-1,300 per tonne on August 25. The price will next be assessed on October 14 following Fastmarkets’ amendment of its spodumene pricing frequency.

Emerging spot market influences contractual prices
Pilbara’s latest auction took place amid negotiations of quarterly and monthly contractual prices for the lithium feedstock, the majority of which is typically locked in under annual or even multi-year term contracts rather than spot sales.

With tight availability of the lithium feedstock and rapidly rising downstream lithium compound prices, spodumene suppliers increased the frequency for negotiating contractual prices earlier this year in order to keep margins in line with the lithium chemical market.

With the high auction price obviously making a splash in the market, sentiment has been mixed regarding whether the sporadic small-scale spot sales and auctions can show every facet of the spot market, and whether the emerging spot market is representative of the entire spodumene market.
Fastmarkets’ fortnightly spodumene assessment reflects the spot lithium raw material market, which is still emerging and evolving versus other commodities.

Pilbara’s auction price was a significant indicator of the spot market, with creditable market participants’ valuations also adding to the visibility of the tradeable pricing level in an open spot market that remains illiquid for the time being.

Sources upstream and downstream of the lithium supply chain have acknowledged that the sharp increase in the emerging spot spodumene market has been propelled by tightness in this market and robust demand for lithium chemicals.

While market participants are closely monitoring the spot activity of spodumene amid uncertainty about how prices will evolve, it is also clear the emerging spot market is having an increasingly higher influence on negotiated long-term contract prices despite the fact that those spot sales account for a small proportion of the total supply of spodumene concentrate.

The jump in pricing in the latest Pilbara auction compared with the inaugural one has filtered to negotiated contractual prices for cargoes to be delivered during the reminder of the year, market sources told Fastmarkets.

The negotiated price of spodumene sales within term contracts for next quarter was mostly on either side of $1,500 per tonne, with some aggressive contract sales likely to be concluded at close to $2,000 per tonne, market sources said. This compared with contractual prices on either side of $900 per tonne in the third quarter.

Lithium compounds rally; tight availability supports spodumene
Lithium’s price rally accelerated tremendously at the beginning of September and the consensus is that as long as such strength can persist, the momentum of the spodumene price is likely to hold.
“As long as the lithium compound prices can remain steady, which guarantees lithium producers’ margins, suppliers are able to negotiate a higher price for spodumene,” one trader source said.

“At the moment, supply of spodumene is limited. That is why there is such a high price at [the] current spot price. If lithium chemical prices drop or stabilize, I do not see how spodumene prices can keep increasing; one drives the other,” a converter in China said.

Fastmarkets’ weekly assessment of the lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range, ex-works domestic China was at 175,000-190,000 yuan ($27,135-29,461) per tonne on Thursday October 7, unchanged since September 23.

Fastmarkets’ assessment of the lithium hydroxide monohydrate, 56.5% LiOH.H2O min, battery grade, spot price range, exw domestic China was 170,000-180,000 yuan per tonne on the same date, also unchanged since September 23.

Although the widespread power cuts in China paused the country’s rally ahead of its National Day holiday (October 1-7), battery-grade lithium carbonate and hydroxide prices posted a monthly gain of 65.91% and 42.85% in September.

On top of that, the tight availability of spodumene has left producers desperate to secure units at all costs, market participants pointed out.

“It is a watershed in November, when those lithium producers who failed to secure adequate spodumene last year struggle [to secure material] for [their] operations,” a consumer said.

“The direct shipping ores (DSOs) that were piled up back in 2018-20 had been all taken… So was [the] spodumene concentrate that was pledged,” he said.

An upstream spodumene source believes the high spot spodumene price could have been paid by someone who is either very bullish on the market and thinks prices will go up, thus preferring to take the spodumene now rather than waiting, or someone who has a contract that they have to deliver on and will have a greater liability if it does not get delivered.

This article, by Dalila Ouerghi and Susan Zhou, was originally published to Fastmarkets IM on Friday October 8.

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