Ann: Spot sale linked to hydroxide chemical pricing, page-112

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Key points

• Pilbara Minerals has come under pressure on Monday
• This appears to have been driven by weakness on Wall Street on Friday
• Pilbara Minerals has also made an announcement this morning

The Pilbara Minerals Ltd (ASX: PLS) share price has started the week deep in the red.
In morning trade, the lithium miner’s shares are down 7% to $4.10.


Why is the Pilbara Minerals share price sinking?

Today’s decline appears to have been driven by weakness on Wall Street on Friday, which has offset a potentially positive announcement.
On Friday, lithium giants SQM, Livent, and Albemarle all fell approximately 10%.
This was driven by news that the world’s largest battery maker, CATL, has offered discounts to some of the Chinese automakers it supplies.

Reuters reports that this reflects a downturn in the price of lithium and a bid to win more orders. CATL has also reportedly been negotiating with its lithium suppliers to bring prices down.
Given that CATL has a 37% global share of the EV batteries market, what it does has a major impact on things.
Investors may therefore believe that the writing is now on the wall for sky high lithium prices.


Pilbara Minerals announcement

In other news, which could be interpreted both as a positive and negative depending on your viewpoint, is that Pilbara Minerals has entered into a sales arrangement for a 15,000 tonne cargo of spodumene concentrate for delivery in the March quarter.
Instead of selling this product on the online BMX auction platform as normal, Pilbara Minerals has selected a new commercial model based on lithium hydroxide tolling.

The sales agreement has been structured to be based on a tolling arrangement under which Pilbara Minerals will receive the value of lithium hydroxide price for the product sold less an agreed amount for conversion and other costs.
Management notes that this pricing methodology has the potential to be highly favourable to the company and opens the door for future tolling arrangements.

Under the terms of the agreement, based on today’s pricing for lithium hydroxide, pricing for the cargo would be aligned with previous spot sales, including those achieved on the BMX platform.
However, the actual price received for this cargo will be calculated using future lithium hydroxide pricing at the time of conversion to lithium hydroxide. This means that if prices decline between now and conversion, Pilbara Minerals will receive less than it did at previous BMX auctions.

Time will tell what price this is.