https://www.wsj.com/articles/lithium-boom-raises-question-what-is-its-price-1543323600
Lithium Boom Raises Question: What Is Its Price?
Efforts are speeding up to bring transparency to the battery metal’s value
By
Scott Patterson
Nov. 27, 2018 8:00 a.m. ET
As demand heats up for lithium, a group of companies are hastening efforts to shine a light into the long-opaque market for the battery material that metal-industry cheerleaders call the “new oil.”
The effort is seen bringing more efficiency to the market for lithium, a key ingredient in the
rechargeable batteries that power electric vehicles and gadgets such as smartphones and laptops. But any such market also faces challenges, experts say, because of the complex nature of the metal in its refined state.
Auto makers, battery companies, and smartphone and laptop providers have been racing to lock down supplies of lithium from major producers such as Charlotte, N.C., based
Albemarle Corp.
ALB -0.21% , the world’s biggest miner of lithium by volume, and Chilean company
Sociedad Quimica y Minera de Chile SA,
SQM 2.11% the No. 2 producer. Some of the world’s notable lithium users include
Apple Inc.,
Samsung Electronics Co. and
TeslaInc.
The
surge in demand has sparked efforts to bring transparency to prices for lithium. Several commodity-price tracking companies, such as Benchmark Mineral Intelligence and Fastmarkets, formerly known as Metal Bulletin, have been expanding efforts to track prices for the ultralight metal. S&P Global Platts started publishing lithium prices earlier this year.
Because lithium isn’t traded on any exchange—unlike gold or silver, for instance—buyers have long been at a disadvantage in negotiations with producers, according to market watchers. In opaque markets, producers often have greater access to information about fast-moving market dynamics, such as unintended mine outages or suddenly sagging demand.
That is especially the case with lithium, a metal mined by a relatively small group of big suppliers in countries from Chile to Australia.
Charging UpLithium prices are up nearly 100% since early2016 amid expectations that demand couldoutstrip supply over the next decade.Benchmark Lithium IndexSource: Benchmark Mineral Intelligence
2016’17’18100150200250300
Big lithium miners “may say they support transparency, but they really don’t,” said Chris Berry, founder of New York commodity consultant House Mountain Partners. “Keeping prices secret between themselves and their end users is good for them.”
An Albemarle spokeswoman declined to comment. A spokeswoman for SQM said the notion that the company is against price transparency for lithium “is not correct.”
Despite a dip in lithium this year, prices are up nearly 100% from early 2016 through October, according to London commodity tracker Benchmark Mineral Intelligence, amid expectations that demand could outstrip supply as production of electric vehicles, the biggest source of demand, takes off in the next decade.
Commodity researcher Wood Mackenzie expects global production of lithium to top 700,000 metric tons by 2025, more than double projections for 2018. Demand from rechargeable lithium-ion batteries will account for 70% of that supply, up from 45% this year, the research firm says.
Several efforts are under way to increase price transparency. The London Metal Exchange is planning to roll out tradable contracts for lithium in 2020. The commodity exchange has been vetting firms that could provide prices for the contract and plans to make a decision next year.
Commodity exchanges in the U.S. have considered lithium contracts, according to people familiar with the matter.
The move to an exchange will mark a big step-up in transparency for lithium. Periodic price reporting by trackers such as Benchmark and Fastmarkets isn’t subject to the discipline of market forces in the same way an exchange-traded contract would be. Hedge funds, for instance, can bet on—or against—a commodity if they think the traded price is out of whack.
Oscar Wehtje, a member of the LME’s market development team, said contracts like the ones the exchange is studying can benefit smaller lithium miners that need funding for new projects, providing more competition against the big, established producers. By giving banks a way to control their risk through hedging, or protecting against a loss because of a decline in lithium prices, the contracts will open up a new source of cash for prospective producers, he says.
Some industry experts question whether financial markets can capture the nuances of lithium production. So-called battery-grade lithium is a highly refined product—typically at least about 99.5% pure lithium—and its chemical composition can vary widely depending on the source. Lithium produced in Chile, home to the world’s biggest reserves, is different from lithium produced in Australia.
“I don’t think it’s possible to do a lithium price,” said Howard Klein, founder of RK Equity, a New York advisory firm that focuses on lithium and other battery materials. The market for lithium is too small, he said, and speculators could push prices around, distorting the broader market. “It could be very volatile.”
Mr. Wehtje said that if prices become too disconnected from market fundamentals—say the price falls well below where physical sales are taking place—producers and other informed market players will jump in, moving prices back in line.
“Look back to the days before wheat was traded,” said Alison Tran, a battery-materials expert at London energy and commodity price tracker Argus Media, which publishes lithium prices. “Every farmer has his own type of wheat. Every commodity has the same issues.”
