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Lithium producers skeptical about benchmark price proposal

Bnamericas Published: Wednesday, June 12, 2019
Lithium producers skeptical about benchmark price proposal

On a visit to the UK last October, Chile’s mining minister Baldo Prokurica asked the London Metals Exchange to consider trading lithium to provide more clarity about its real value.

“We want to generate conditions for our products to be sold in a transparent manner, and that raises the possibility that lithium be traded on the LME so there can be clarity about its value,” said Prokurica at the time.

Since then, the LME has asked companies that monitor prices of battery-grade lithium, which used in electric vehicles (EVs), to submit proposals to provide a reference price for lithium contracts.

Unlike copper or other metals used for the manufacture of EV batteries, there is currently no benchmark price for lithium trading.

Producers negotiate contracts with buyers, but the deals are not made public. US-based Albemarle, which has operations in northern Chile’s Atacama salt flat, is moving customers toward long-term contracts of a decade or more, whereas local producer SQM favors shorter contracts and usually charges spot market prices.

Early this week, the LME announced it will be partnering with company Fastmarkets to develop the reference price for lithium contracts.
Investors, lithium producers and analysts gathered at the Lithium Supply & Markets conference in Santiago debated whether it would be positive to set a benchmark for lithium contracts.

Producers were skeptical about the idea, arguing that unlike copper, lithium is not a commodity but rather a specialty chemical with its own product specifications for each customer.

“There are so many types of products. Each client has a different requirement and this is a challenge that has to be resolved in order to have one referential price,” Felipe Smith, SQM’s commercial VP of iodine and lithium, told BNamericas.

Smith said SQM is not closed-minded about participating in LME’s plan but they had to see how the matter evolved. “We would have to see how precise the price is, and if it reflects what we’re seeing in the market. If it really does, why not?” he said.
David Ryan, Albemarle’s VP of corporate strategy and investor relations, said his company also views lithium as a specialty chemical with very customized products and specifications.

“An exchange contract tends to support a commodity market, and that’s not what we believe this is,” he told the conference. “Our intent is that we will not be providing price information to the index.”

Emma Hall, Tianqi Lithium’s VP of corporate development, was not categorical but agreed that its customers have different product specifications and that is why it would be hard to have an index.

”It would be helpful to provide clarity to the industry but if it isn’t right it could be harmful,” she said.

Ken Hoffman, McKinsey leader for EV battery materials research, said the lithium industry is changing very quickly. “At the end of the day, it would be interesting to see if the market would pay for a significant premium [for lithium]. For the lithium producers it’s a lot more complex than sugar or lead,” he said.

The real question is how the industry figures out the price of a “commodity” battery, said Hoffman. “There’s going to be type 622, 111, 811, solid state and cutting-edge batteries. The automotive industry will try to differentiate themselves and there’s going to be a constant evolution of the product.”

William Adams, Fastmarkets head of base metals and battery research, said the lithium market is growing very rapidly and will hit 1Mt lithium carbonate equivalent by 2025, as demand increases for EVs. “In that sort of environment and in order for the industry to grow that fast, it’s going to need a very liquid price so the intermediary cathode producers don’t have the hassle of negotiating prices all the time.”

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