2021 - The Year for EMH, page-1038

Rodney Hooper

#Lithium #EVs
The lithium market is currently experiencing the perfect storm through a combination of rising EV demand, inventory builds & new supply is limited. The "swing" supplier is spodumene concentrate (SC) & recently, we've seen substantial spot price rises culminating in Pilbara's "spot" auction where 10kt of SC5.5 FOB Port Hedland attracted 62 bidders willing to pay between US$700 - $1,250/t. In the battery-grade chemical market, 2021 contracts agreed at lower prices in 2020 are negatively affecting formula based SC contract prices - we estimate Pilbara's Q2 2021 average contract price at US$550/t - well below the recent winning bid at spot auction (US$1,250/t). Pilbara is in the fortunate position of restarting the Altura plant & being able to capture more spot pricing. Can new producers secure full funding without binding offtake contracts based on agreed formulas & price floors? We believe new DMS only SC projects with low capex commitments will enjoy maximum sales flexibility if they can self-fund.

Below is a graph of #RKEquity's estimated "fair value" SC6.0 FOB Australia price that allows Chinese independent converters to earn a 15% operating margin based on the ex-VAT chemical price. We calculate that the winning spot bidder at $1,250/t (SC5.5) would need a battery-grade chemical price of $18k/t+ to earn a 15% margin. Given this reality, the speculation is that the buyer is a new converter desperately looking for material to start production.

Will current higher chemical & SC prices finally secure much needed financing for new projects to ensure future supply?