By: Joe Lowry

Originally published by Joe Lowry on January 1, 2016. Click here to view the original article.

Interest in the lithium market grows with each passing day. Increased demand for lithium ion batteries that power smartphones, e-transportation options (cars, buses, bikes, etc) and ESS has created substantial attention from investors. The current soft market for traditional commodities (oil, steel, etc) has also drawn the interest of many analysts looking for a product with an upward trajectory to comment on.

A renewed high profile of the lightest metal combined with a growing supply shortage — especially in China (the world’s largest lithium market) has created a very dynamic pricing environment that will likely last until the end of the decade due to the length of time it takes to bring new brine projects to market.

The failure of Albemarle (NYSE:ALB)/Rockwood to bring their carbonate expansion in Chile on-line as scheduled and Orocobre’s (TSX:ORL,ASX:ORE) seemingly endless “start-up” has left supply growth to a small band of Chinese spodumene converters who have built substantial excess capacity that requires a supply of feedstock which is currently dominated by the Talison JV controlled by Sichuan Tianqi (SHE:002466) and Albemarle. These two companies can collectively be referred to as the “evil empire” if you are trying to source spodumene.

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If you need a primer on the spodumene situation please read my recent posts on the topic but suffice it to say the Talison JV’s strategy is to manipulate the raw material supply situation. This unhappy circumstance will last until other spodumene suppliers from Australia enter the market and help change the balance of power. Tianqi and Albemarle’s recent behavior (shorting supply of Talison material to converters as well as raising the spodumene price) has driven up the lithium carbonate price in China substantially.

Lithium is a very opaque market making accurate pricing data hard to come by. The lack of an LME type pricing mechanism has frustrated lithium purchasers for years. So, what is the current price for the most frequently purchased lithium product — lithium carbonate? My very clear response to that often asked question is: “Well, that depends……”.

What I can tell you is that there is currently a “wild west” pricing environment in China with prices spiking into the teens in USD terms but the price paid in a few spot transaction is not “the price” of lithium carbonate — even in China. I can also tell you that members of the “Big 3″ have signed a few full year 2016 contracts in the low $6,000 range; however, most customers around the world will pay substantially more than $6,000/MT for lithium carbonate this year. China will have the highest prices but the rest of the key markets will tend to converge to a narrow price band. The big loser is Korea who used to have a deep discount when compared to their competitors in Japan and China. It seems SQM (NYSE:SQM) and Albemarle/Rockwood finally figured out that in a shortage situation there was no longer a need to cave in to LG (NYSE:LPL), Samsung (KRX:005930) and Umicore’s (EBR:UMI) tough talk.

The fact is there is no clear cut “price” for lithium carbonate or lithium hydroxide as we enter 2016.

In the quarter century I have been active in the lithium business I have never seen a bigger spread between high and low prices in the market. The high prices in the China spot market being more than double some contract prices elsewhere in the world. This would seem to be a market ripe for arbitrage but that opportunity is limited in such a small arena.

As you read analyst reports and other “credible” sources — be suspicious of anyone starting a sentence in 2016 with “the current price for battery grade carbonate is…”. Much of the pricing that was previously done on an annual basis will gravitate to six month or quarterly pricing which will trend upward until new spodumene and brine capacity comes online.

Regarding hydroxide — the price for hydroxide in China is generally lower than carbonate given the unique situation in that market. Elsewhere I have personal knowledge and in some cases participation in pricing ranging from the low $8,000s/MT to over $12,000/MT.

I have a global average price projection for both carbonate and hydroxide in 2016 but that is not something I publish on LinkedIn. A person has to make a living.

Happy New Year — time to watch some football.

After more than two decades with a major lithium producer holding senior leadership positions at lithium operations in the US, Japan and China; Mr. Lowry formed Global Lithium LLC – an advisory firm that works with lithium producers, users, investors, hedge funds and governments on four continents. He has an extensive network of contacts with the leadership of the world’s leading lithium suppliers and users. His knowledge of lithium supply and demand, pricing, the lithium ion battery market and industry trends enables him to provide unique insights into the world of lithium.

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