It has been almost a year since lithium prices reached their inflection point to all-time highs, and three months since Goldman Sachs published a controversial research note predicting a price drop due to increased lithium supply.
However, Benchmark’s average global lithium prices have remained stable since the record high in April, with Chinese technical grade lithium carbonate and battery lithium carbonate prices continuing to rise. This is in stark contrast to other battery metals such as cobalt and nickel, which have fallen in price this year.
Since the beginning of June, the price of lithium carbonate in China for batteries has increased slightly, but since the beginning of the year, the price of lithium carbonate in China for batteries has increased by 90%, and lithium hydroxide by 127%.
At the same time, competition for future lithium has only intensified as automakers from Ford to Stellantis signed agreements to limit supplies.
Government policy is also pushing demand to new speeds with the passage of the US Inflation Reduction Act, which will only accelerate the need for automakers to secure lithium sources, especially in North America.
Mercedes-Benz and Volkswagen announced this week that they will be looking for battery raw materials such as lithium in Canada as part of an agreement with the Canadian government.
“Government influence is in play right now and we’re seeing it in full force in the US and just beginning in Canada,” said Simon Moores, chief executive of Benchmark. “The lithium-ion battery is now geopolitical. And if electric vehicles mean lithium-ion batteries, then electric vehicles mean mining.”
So, what are the short and long term drivers of the current market?
Short term: record year continues for lithium and battery demand
Demand for lithium-ion batteries will rise 36% this year to 610 gigawatt-hours, according to Benchmark’s lithium-ion battery database. According to the Benchmark Lithium Forecast, lithium supplies will increase by 33%.
In the short term, continued strong global demand for electric vehicles, as well as record heat and drought in southwest China, are key drivers of the market growth.
Sales of Chinese electric vehicles have rebounded since April, when a strict quarantine was imposed in Shanghai to combat the spread of Covid-19. Chinese EV sales rose 25% in June from a month earlier.
According to Rho Motion, global sales of electric vehicles rose 34% in June from a month earlier.
At the same time, the supply of lithium was also affected by China’s worst heatwave in 60 years. Sichuan provincial authorities have ordered factories in most cities to shut down production until Aug. 25 to deal with power shortages caused by a lack of hydropower generation due to drought.
The shutdowns could affect about a quarter of China’s lithium production capacity, according to Benchmark. Companies including Yahua and Tianqi Lithium produce lithium in the province.
Lithium carbonate battery prices in China rose 1.4% between August 17 and 24, the biggest weekly increase since Benchmark began publishing weekly China EXW lithium price data on May 4, 2022 , due in part to concerns about power. deficit.
Sustained high prices for Australian spodumene are also driving prices. Spodumene (6% Li2O) prices are up 189% since the start of the year, according to Benchmark.
“We hear from market participants that BOF inventories are low – this is supporting demand for carbonates and will eventually have an impact on hydroxide prices,” said Daisy Jennings-Grey, an analyst at Benchmark.
Internationally, lithium hydroxide continues to trade at very high levels, around $80,000/t, with small spot market volumes in Europe and North America.
Prices used in contracts between producers of lithium and buyers are still catching up with prices in the Chinese spot market as they are being reviewed and according to Benchmark it will likely take another six to 12 months for this process to be fully realized at all contract prices. .
Chilean lithium miner SQM said its average selling price of lithium in the second quarter was $54,000 per tonne.
“So even if the spot market drops, contract pricing will still do well in 2023,” Jennings-Grey said.
Long term: Lithium supplies are limited for some time
Very little additional lithium production capacity will be added until late 2023 and early 2024, according to Benchmark, and many projects are still being delayed.
This is contrary to the view of Goldman Sachs, which predicted that the market would enter a “prolonged surplus phase” starting this year due to supply from new lithium projects in China.
“A shock to the system will drive prices down, but the shock will not come from significant oversupply from China,” said Moores, CEO of Benchmark.
In the long term, the lithium market is likely to remain tight this decade but become more balanced around 2026, pushing prices to more stable levels, according to the Benchmark Lithium Forecast.
“High prices are spurring accelerated capital spending, which will lead to faster lead times for a number of projects under development, but the pace of these expansions has not kept pace with growing demand,” said Andrew Miller, COO of Benchmark.
“The industry is facing a decade of ongoing change. A wider range of assets across a more diverse group of manufacturing regions will be needed to meet the structural constraints the industry is facing and the growing geopolitical importance given to strategic supply chains.”
The supply gap is expected to worsen from 2030 as demand rises by another 1 million tons of LCE in a few years.
How are Benchmark prices used in supply contracts?
Benchmark lithium prices are used in supply contracts between lithium producers and downstream and downstream supply chains, including automakers.
As contract agreements have moved away from fixed-price deals due to greater price volatility, buyers and sellers have attempted to introduce market mechanisms into contracts using Benchmark IOSCO-certified lithium prices or a set of announced prices, including Benchmark-published grades. This allows them to price contracts in a way that takes into account increased price volatility in recent years and increases market transparency.
The frequency of Benchmark’s published prices also allows for more frequent review of associated contracts, which means that contract prices can move closer in time to significant ups and downs in spot market prices.
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