Lithium prices have contracted in China on short-term demand issues in 2023
Miners are focusing long-term on becoming chemical producers to capture more of the EV battery value chain
We profile a collection of ASX players with plans to produce lithium hydroxide
A spot of bother has crept into the minds of ASX lithium investors over recent weeks, as prices for chemicals in China have steadily crept down.
Demand for commodities was expected to rebound in China, the most important market for battery metals, after the end of Covid and the Lunar New Year.
But prices have continued to fall from the record highs we saw in 2022. Trading over US$80,000/t in early December last year, they are now around the US$60,000/t mark.
According to Fastmarkets, prices for lithium hydroxide fell slightly last week in China to ~US$61,200/t when converted from the local Yuan, while prices for carbonate fell further by around US$2500/t to US$48,900/t.
In the combined market for China, South Korea and Japan prices look a little better. Hydroxide is paying US$71,500/t, with carbonate at US$61,500/t.
Two clear trends are emerging. The first is that prices have come off record highs. Fastmarkets’ last spodumene assessment was down too from US$6750/t to US$6150/t.
The second is that hydroxide, once threatened for its status as the premium battery grade lithium chemical, is commanding a big premium right now over carbonate.
How long will these situations last?
Recovery could come in Q2: Analyst
Carbonate is traditionally used in lithium-iron-phosphate battery chemistries.
Those go into cars with shorter ranges and more affordable prices with a high market penetration in China.
“The gap is mainly down to weak demand and bearish sentiment in China, which is driving down demand from battery manufacturers and CAM producers who are currently operating at utilization rates of around 60%,” Fastmarket battery materials analyst Jordan Roberts told *.
“With LFP being the dominant chemistry in China, this has hit carbonate the hardest.
“However, LiOH still remains tight in the international markets, especially due to a lack of tier one qualified material and the predominance of NMC batteries. Because of this, sellers have been unwilling to reduce hydroxide offers in the Chinese domestic market, knowing they can get a high price in the international markets.”
Carbonate supply has also increased in China, with domestic sources of lepidolite, brine and spodumene production increasing, Roberts says.
But there could be respite for carbonate producers in the coming months.
“LFP production is due to recover slightly in March, and we expect a recovery in automotive demand sometime in April or May,” Roberts said.
“So although in the near term prices still look like they might soften, there should be some support from restocking and improving demand in Q2 23. Combined with more hydroxide supply coming online toward the second half of the year, we would expect the divergence to narrow.”
Low grade supply ramping up
Fastmarkets head of battery and base metals research William Adams said the likelihood of the current downturn in lithium prices was “well telegraphed” going back to the middle of 2022.
“It was clear that a supply response was underway with the increased output in South America, especially at SQM, the fact that DSO shipments from Africa and Australia were being made last year, ahead of spodumene lines being ramped up, and as China was rapidly developing/expanding lepidolite and spodumene operations,” he said.
The presence of “not-yet-qualified” material on the market offered cheaper feed for LFP CAM manufacturers, Adams said.
“So the temporary excess supply has weighed on Chinese prices, especially carbonate, as stronger demand for hydroxide outside of China is holding domestic hydroxide prices up, albeit all prices are likely to be pulled down to varying extents by the trends in China.
“Given environmental concerns in China and the higher cost of producing some of the lower grade lepidolite, we expect this low grade material will be very price elastic.”
Long term projections for EV demand remain strong. S&P Global projects “battery electric vehicles, plug-in hybrid electric vehicles and fuel-cell electric vehicles in new light vehicle sales in Europe, mainland China and the US will rise to 70%, 49%, and 47% in 2030, respectively, from an estimated 19%, 18% and 8% in 2022.”
And as the market matures we are seeing more miners look to move up the supply chain from sending material to converters to becoming producers of battery chemicals themselves.
The operation, which will initially sell spodumene for conversion into lithium chemicals by Ganfeng in China, is expected to open by the middle of next year, around the same time as Liontown’s Kathleen Valley mine opens its doors in WA.
The US$255 million mine is around 12 months into a 27 month build, one which boss Simon Hay told * last month remained on time and on budget.
A second stage would cost a comparatively cheap US$70m to add 325,000tpa of SC6, thanks to the installation of critical infrastructure in the initial build. A scoping study is expected this year with a front end engineering design phase to begin before New Year’s.
A study meanwhile on a downstream processing facility to produce refined lithium chemicals in Mali is expected to start in the first half of 2023.
“We have discussions underway with Ganfeng around Stage Two, and where we potentially convert that together, or with a third party,” Hay said.
“So they’re early stage discussions but we aim to progress those discussions this year to the state that we can start talking about something concrete.”
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