$5,650/mt! The Auction has Settled and Where will Lithium Prices Go from Here?

SHANGHAI, APR 28 (SMM) - On the afternoon of April 27, Pilbara BMX conducted its fourth lithium concentrate auction and the price settled at $5,650/mt.  This auction has achieved a 140% increase from Pilbara's third auction at the end of October 2021. The auctioned ore volume was at 5,000 mt, with a concentrate grade of 5.5%. With calculation, the cost price of LCE was about $396,000 /mt ((5,650 x 6%/5.5% + 90 (freight)) x 8 (conversion factor) x 1.13 (VAT) x 6.57 (exchange rate) + 25,000 (processing fee) = 396,000 yuan/mt), which was close to the $400,000 /mt! The batch of ore is expected to be shipped and delivered from mid-June to mid-July. The lithium concentrate auction prices rose sharply, which was the exact opposite of the recent lithium carbonate trend. And where will lithium prices go from here? SMM will be in this article for you to interpret.

Recently, the pandemic occurred one after another across the country, and the logistics control have caused a great blow to the operation of downstream battery and vehicle enterprises. The impact has transmitted upward to the cathode material end, so the overall demand of lithium salt was weak and the price acceptance was low. In terms of the short-term supply, the output of lithium carbonate is expected to be basically flat in April compared with the previous month. However, due to the significant increase of imports in March, the domestic spot circulation of lithium carbonate has increased significantly at this stage. On the short-term demand side, which can be split according to the cathode types:

1. Ternary cathode materials: Under the influence of the pandemic, Some battery factories may give priority to going to reduce the inventory and reduced the export orders for high, medium and low-grade nickel by about 15% - 20% amid the declining terminals operation rate, the weak demand for batteries and the fluctuated prices of various raw materials such as nickel, lithium, cobalt and manganese.

2. LFP: In the early March, the negotiation between LFP plants and battery plants progressed slowly, and the operation of LFP did not decline significantly. However, there may be a gap between the actual delivery and the number of battery orders, resulting in the high inventory of finished products of some LFP plants. In addition, during the downward market, the overall procurement significantly reduced due to the increased proportion of tolling business in some battery plants and poor operation expectation amid the long-term lithium salt orders signed by the LFP plants.

3.LCO and LMO: In the off-season of digital and small motive power, the terminal demand was very weak. The prices of many raw materials rose to a high place, the demand for outside procurement was weak amid the wait-and-see mood of the downstream battery enterprises. Affected by that, the demand for lithium carbonate procurement was also very weak.

In terms of short-term supply and demand performance, there was no obvious increase at the supply side but the demand was weak. As a result, the increase of inventory in the short term may be a foregone conclusion and the lithium prices also declined.
It is expected that after this ore auction, the high ore cost will provide strong support for the prices of lithium carbonate. The prices may be stable in the short term driven by the emotional aspects and the game between upstream and downstream.

However, after entering the medium and long-term supply and demand dimension, the pandemic situation, nickel prices and other events are short-term market disturbance factors. If the time dimension is extended to the year, whether the shortage of lithium resources will continue in 2022 will be a key point to decide the subsequent increase of lithium salt supply. It is expected that from late-May to early-June, after the end of the pandemic, most manufacturers with low inventories will add procurement amid the recovery need of terminal and battery end and the rebound in demand. The lithium salt inventory may return declined only slightly or remained in tight balance state in the second half of the year, and the prices still have a large room for rise. Considering the factors such as logistics and transportation, the actual finished products will enter the market from September to October. At that time, the inventory will decline amid the approaching peak season of the power market. Active expectation form many parties jointly supported the continued upward trend of the auction price, so the overall trend was opposite to the recent trend of lithium carbonate prices.

Summary of three auctions in history:

The first auction: On July 30, 2021, the transaction price was $1,250/mt, SC 5 5%, with a trading volume of 10,000 mt.

The second auction: On September 13, 2021, the transaction price was $2,240/mt, SC 5 5%, with a trading volume of 8,000 mt.

The third auction: On October 26, 2021, the transaction price was $2,350/mt, SC 5 5%, with a trading volume of 10,000 mt.