[SMM Hotspot]Lithium mine changes long-term pricing model, can it "stop" the decline in lithium spodumene prices?

SMM News on January 29th: On the morning of January 29th, Australian lithium mining company IGO announced that the long-term off-take pricing model for Greenbushes, the world's largest lithium mine owned by the company, Tianqi Lithium, and Albemarle, has been changed. It will now settle using the average lithium salt price of the previous month of shipment (M-1), compared to the previous settlement method of using the average lithium salt price of the previous quarter (Q-1). It will reference the average of four quotations and provide a 5% discount.

In addition, the announcement also mentioned that the production guidance for FY24 lithium spodumene concentrate has been lowered from 1.4-1.5 million tons to 1.3-1.4 million tons. The announcement also stated that due to lower-than-expected deliveries by Tianqi and Albemarle in the first half of this year, mine production during this period will be slightly reduced.

SMM believes that the change in the long-term order model by this lithium mining company implies a lower mining price compared to the previous Q-1 pricing model for companies such as Tianqi Lithium and Albemarle, who are currently experiencing falling lithium prices. The profit proportion on the salt and ore ends for these two companies will change.

In fact, different lithium mining companies have different long-term pricing models, but according to SMM's understanding, IGO is not the only one to choose to "lower prices." Most of the mining companies that have already confirmed long-term pricing use a similar M or M+1 model for pricing. It can be seen that "lowering prices" has become the main theme of long-term pricing for lithium mining companies compared to the previous Q-1 pricing.

Of course, the reason for this situation is directly related to the continuous decline in lithium spodumene concentrate prices since entering 2023. According to SMM's spot price index, as of January 29, 2024, the price of lithium spodumene concentrate (CIF China) index has dropped to $938 per ton, a decrease of $4567 per ton, or 82.96%, compared to the end of 2022, when it was $5505 per ton.

Based on the financial reports of various mining companies in the fourth quarter, reducing production costs has become the main theme of 2024. Whether it is Core Lithium, which announced the suspension of original ore production, or cash-rich Pilbara and MRL, they all have expectations of reduced future cost expenses. Therefore, SMM expects that if the price of lithium salts drop again after the Spring Festival due to lower-than-expected terminal demand, the import price of lithium spodumene concentrate is expected to still have some room for further decline.