Lithium Salt Pricing Scheme Matures with Global Scramble for Lithium Resources

SHANGHAI, Oct 11 (SMM) - According to recent online news, NIO plans to invest in an ore mining company headquartered in Australia, Greenwing Resources Ltd (hereinafter referred to as Greenwing), with a total amount of potentially more than 600 million yuan. With the financing, Greenwing will accelerate the development of its San Jorge lithium project in Argentina. Previously, EVE Energy also announced on September 27 that it planned to acquire 20% stake in the lithium salt company Ruifu Lithium for 800 million yuan.

As the new energy sources are highly sought after, the lithium prices carry strong upside momentum, which lift the cost of downstream companies while squeezing their profits. More and more companies, such as GAC, NIO, BYD and other car companies as well as CATL, EVE Energy, Sunwoda, Gotion Hi-Tech, SVOLT and other battery companies, are beginning to position themselves in lithium resources. In addition to car maker and battery companies extending their landscape across the supply chain, the development prospects of the lithium industry have also attracted companies from other industries, such as Zijin Mining, Jinyuan, Tiantie, Kanglongda.

With more new entrants setting foot in the lithium market, how will the pricing scheme of lithium salts evolve?

At present, three categories of companies in the lithium salt market will affect the pricing scheme of lithium salts:

The first is traditional smelting enterprises. When there are only lithium smelting companies in the lithium salt market, the lithium salt market is in a period of rapid development featuring high profit margin and immaturity, hence most lithium salt companies focus mainly on short-term interests and hope to increase corporate profits through independent pricing scheme, without considering the market’s long-term stability. The pricing scheme in mostly in the form of long-term orders which fix the volume of products while the prices are subject to fluctuations.

The second category is battery and terminal enterprises. Battery companies and car makers care more about long-term price stability, and are keen to ensure the supply chain via securing lithium resources. In this way, lithium salts are produced and supplied to affiliated cathode material companies in the system. Enterprises such as CATL and BYD have a high demand for lithium salts. Large fluctuations in lithium prices will damage cost and supply stability. Therefore, these terminal companies are more inclined to refer to third-party quotes’ monthly average price for settlement (with less price volatility).

The third category is other metal mining enterprises. Other metal mining enterprises have a deeper understanding of the established metal products pricing scheme. For example, Zijin Mining has been deeply involved in the copper and aluminium industry for many years, thus is familiar with the pricing of mature metals, and also concerns more about the sustainable and stable development of the industry. These enterprises also incline to settle with third-party quotes, while promoting the transition to derivatives pricing scheme in the future.

Other new entrants have little understanding of the lithium salt industry, and have little experience in the metal industry. After entering the lithium salt industry, they mostly follow the trend and have little impact on the industry's pricing scheme evolving process. 

In general, there are still few new entrants entering the lithium salt market at present, and most market participants yield to the pricing scheme favoured by smelting enterprises, that is, fixing the volume of products delivered via long-term orders while leaving the prices subject to fluctuations (independent pricing scheme).  

Nonetheless, with the increase of new entrants into the lithium market, especially terminal enterprises and other metal mining enterprises, their influence on the industry's pricing scheme will gradually take form in 2023, and the use of third-party quotes will increase. In the long run, as the production of lithium carbonate ramps up further and the product matures, the feasibility of pricing via derivatives may also increase.