Hi Cljping, I think Joe might have been over simplifying the...

Hi Cljping,

I think Joe might have been over simplifying the position somewhat

Some company(ies) has/have to supply the chemical companies with the feedstock, surly. That is, unless these chemical companies are vertically integrated with salars and/or mines on which they can depend upon to produce the concentrate from the mines or LCE from the salars to be processed into battery chemical.

Specialisation does have economic advantages, it means companies can concentrate on what they do best. Mining, or salars are specialised disciplines, as too chemical manufacture and battery production.

Much of the reason currently for price weakness has to do with the raw material - in particular the quality of spodumene coming out of exporting counties, in particular Australia. This is being addressed and quality is approaching that demanded by importers. China has been the main dumping ground for the lower grade material, this is reflected in the Chinese spot price as it has remorselessly kept falling for over 12 months.

SQM has many problems in meeting the grades required by battery manufactures for over 12 months and has been a marked seller into the Chinese market affecting the spot price of LCE which has also eventually impacted on the price of LiHO. Chile's largest lithium producer, SQM, has reported a 24.7% year on year drop in lithium revenues to $138.5 million in the second quarter of 2019, from $183.9 million during the same period in 2018 on lower lithium prices achieved in China and market oversupply.
26 Jan 2019

29 Jan2020

As can be witnessed prices have tumbled significantly over a year.

Taken from a Q and A session by Aleksey Yefremov ―Nomura Instinet ― Analyst (Aug 2019) :
Q: I'm trying to square the growth and demand in the second quarter versus what prices are telling us, and how do the two reconcile? Was it an inventory destock? And, a question related to that ― do you have any read on what's happening in July following the change in subsidies in China? Has demand picture changed a lot versus what you saw in 2nd quarter?

A: There's no doubt that the supply situation is far more bearish than the demand situation. We've seen ― our best estimate is, as I said, about 110,000 tons of hydroxide is going to be purchased in 2019, but we think about 140,000 tons may be produced. And so, not only do you have a situation where there's a lot more volume available into the market relative to demand than we'd expected, I think the single biggest driver of pricing today is a customer who, first and foremost, has destocked.

Why would you hold hydroxide inventories when A). It has a finite shelf life, and B). You see the price going down in the future?So, I think we've seen destocking at the capital material producer of hydroxide, but we've seen ― based upon expectations as to spodumene prices, there's been a decline in marginal cost of production at that spodumene-based hydroxide producer, so put yourself in the minds of a rational consumer of lithium hydroxide.
a) You're going to destock the inventory you have today.
b) You're going to defer purchases to the future because the price will be lower in the future than it is today.

If you look at the spodumene story and see a continued increase in spodumene output, you don't see pricing of spodumene recovering anytime soon, so you don't have a huge incentive to do anything more than buy what you need in any given month.
Frankly, I think that's what we've seen going on.

Meanwhile, supply comes in in larger lumps. There's always an incentive, particularly on a spodumene-based unit, to just run them ― run them flat out and produce the product. Any rational consumer of lithium hydroxide is saying, "I'm just going to buy what I need as I need until the situation changes."