Second Lithium Concentrate Auction Price Settled at $5,955/mt, How Would it Guide Short-term Directions?

SHANGHAI, May 25 (SMM) - Pilbara BMX conducted its second lithium concentrate auction in 2022 on May 24 at 15:30 local time, with the price settling at $5,955/mt, which is 5.4% higher than Pilbara's auction price of $5,650/mt on April 27 2022. The volume of concentrate auctioned this time is 5,000 mt with a grade of 5.5%, which translates to a cost of approximately 423,000 yuan/mt for 1 tonne of LCE! The ore is expected to be delivered from mid-June to mid-July. And after taking into account the logistics cycle, the product is expected to enter the market in September or October. (Note: Cost calculation of 1 tonne of LCE: ($5,955/mt (auction price) + $90/mt (freight)) × 6/5.5 (grade conversion) × 8 (unit consumption) × 1.13 × 6.67 (RMB/USD exchange rate) + 25,000 yuan/mt (processing fee) = 422,630 yuan/mt)

SMM has done a brief review of the four auctions in the past. With the intensification of the contradiction between supply and demand of lithium resources, lithium concentrate prices have risen quickly along with lithium salt prices, accelerating the transfer of profits to the upstream, while also forming a cost support for the current high lithium salt prices.

First auction: 30 July 2021, $1,250/mt, Li grade 5.5%, 10,000 mt;

Second auction: 13 September 2021, $2,240/mt, Li grade 5.5%, 8,000 mt;  

Third auction: 26 October 2021, US$2,350/tonne, Li grade 5.5%, 10,000 mt;

Fourth auction: 27 April 2022, US$5,650/t, Li grade 5.5%, volume 5,000 mt.

In terms of domestic market, as the second quarter is severely hit by the pandemic, some terminal car enterprises experienced production restrictions, and battery and cathode active material orders dropped significantly. Weakening demand pulled down lithium salt prices in April. And recently, lithium carbonate, led by industrial-grade lithium carbonate, has shown signs of price hikes. Some of the reasons are listed as follows among others:

Improved pandemic situation: With the improvement of the pandemic situation in Jiangsu, Zhejiang and Shanghai, the terminal demand is expected to recover smoothly.

Demand: Some enterprises expect the orders in June will improve compared to May, led by LFP materials. Although most of the orders have not yet been materialised, the frequency of inquiries increased significantly, and buyers are willing to accept relatively higher prices. In addition, some small and medium-sized enterprises are also purchasing on demand in small amount because of their low in-plant inventory, and the purchase prices are slightly higher than before. Large enterprises have not yet started to purchase in large amounts.

Causticising demand: Lithium hydroxide prices are firmer than lithium carbonate, increasing the demand for industrial-grade lithium carbonate for causticising and purification. Some high-nickel material manufacturers, due to cost pressure, also increase the demand for industrial-grade lithium carbonate for causticising to supplement the supply of lithium hydroxide required for production.

Other factors: The recent auctions of lithium concentrate and the mining rights in Sichuan have offered a boost from the sentiment side.

Under the combined effect of these above factors, some lithium salt plants raised the prices this week, while the willingness to ship at low prices weakened significantly. On the downstream material side, on the other hand, cathode active material plants have been cautious to purchase as the orders have not been fully finalised and they are generally suspicious of the actual recovery of terminal demand. In addition, the settlement prices from the cost side still have a gap of around 20,000-30,000 yuan compared to the spot price.

To sum up, the auction prices of lithium concentrate are still rising, mainly due to positive expectations following the rebound in demand in the third quarter of 2022. However, the pressure of high prices is becoming more and more significant, and the auction price growth will be relatively small. In addition, as the pace of recovery in demand for cathode active materials is not yet clear at this stage, prices are expected to remain mainly stable in the near future. Nonetheless, the auction prices will underpin lithium salt prices.