I'm tempted to start a new thread for this post, but feel there...

I'm tempted to start a new thread for this post, but feel there are too many threads running atm and this is a lithium related article.

Many of you will be aware that lithium product pricing and misunderstandings by "analysts" have severely affected share prices in  the Li sector, particularly over the last twelve months.

A major factor in this is the fact that unlike other commodities in the materials sector, there is no standard index for pricing available to the markets. The complexity of lithium chemicals and end user specification requirements is a major impediment to any form of standardisation in attempting to put a price on "Lithium".

Over the last few months the London Metals Exchange have been attempting to achieve a coherent picture of inputs to create such an  an index. It is still not clear if this is going to be successful, but they are at least trying. Companies such as Benchmark Minerals Intelligence have been involved in the process to get some clarity into the market.

Emily Hersh, Joe Lowry's partner in the Lithium Podcast, has posted an article on LinkedIn which in my opinion is an outstanding summation of the complexity and necessity of achieving a reference for pricing of the various chemicals being produced for Li battery production.

I highly recommend this to all.

https://www.linkedin.com/pulse/dear-london-metal-exchange-get-lithium-right-emily-hersh/



Dear London Metal Exchange: Get Lithium Right

Published on September 2, 2018

Emily HershFollow

Managing Partner at DCDB Group

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For the past few months the lithium world has been abuzz with the news that the London Metal Exchange is set to launch a lithium contract. Conceptually, that seems like a good thing for a market that appears to be rocked by nontransparent, non-uniform, unpredictable price swings. But as my dad would say, cool your jets.
There are inherent challenges to this undertaking that any serious effort must address head on from the onset rather than leave to the end, or brush aside like an insignificant detail. What follows are the shortest explanations I can muster of what I consider to be the seven most difficult challenges to overcome.
1.The lithium market is still (relatively) tiny

For all the attention lithium has garnered over the past few years, it is important to recognize that it is in its infancy when compared to more mature markets like gold. The value of the lithium market annually only passed US $1 billion in 2015, and while it was worth around US $3 billion in 2017, it still has quite a ways to go in order to reach a significant size when compared to other industries.

Additionally, the physical volume is not the same as the market value in USD. The physical volume did not triple from 2015 to 2017, and much of the recent growth in market value was driven by higher prices.
2. The lithium market is growing exponentially. It's unprecedented

Leave aside the lithium price for the time being, the physical volume of the lithium market must basically quadruple from 2017 to 2025. That means that regardless of the details, the market is going to have to change radically.

I highlight this growth to caution against trying to make lithium look like any other market. It is being driven by growth in the battery industry, driven in turn by growth in demand from the electric vehicle space. Each of these industries are marked by innovations, changes, and basically their own seas of complex moving parts that are relevant to the lithium space.
3. The lithium market is and will remain highly concentrated

It is silly to discuss the lithium market without the explicit input of Albemarle, SQM (Sociedad Quimica y Minera de Chile), Ganfeng (Jiangxi Ganfeng Lithium Co), and Tianqi Lithium Corp.. Like it or not, these four entities unequivocally dominate the space. In 2017 they collectively comprised 80 percent of the market supply.

According to Global Lithium's Joe Lowry, in 2025 these players will still account for 70 percent of supply. Now as the market is growing tremendously there is certainly room, and indeed need for, additional players. But from the standpoint of trying to get a meaningful metric for the market, some measure of buy-in from these folks is far more critical than whatever opinion Bolivia's government, for example, may hold.
4. Lithium products are chemicals whose inputs are mined

I see two equally damning errors committed by those trying to understand the lithium market. Those who come from a mining and commodities background fail to grasp that lithium products are specialty chemicals. Equally and oppositely, those from a chemicals background fail to understand how to read a junior mining project. In my opinion, the lack of communication between these two expertise camps accounts for a great deal of the oversupply confusion.
To vastly simplify, when we talk about lithium demand we are primarily referring to two products: lithium carbonate and lithium hydroxide. When we talk about supply, we are talking about lithium-bearing brines or lithium mineral containing hard rock deposits. When you start with a brine, you have to make lithium carbonate first before making lithium hydroxide. When you start with hard rock, you crush and treat the ore (known as beneficiation) to get to a concentrate, and then this concentrate is chemically converted into lithium hydroxide and/or lithium carbonate. A decent rule of thumb is that a world class brine deposit is lowest cost source of lithium carbonate, and the lowest cost hard rock converted by a world class operator is the low cost source of lithium hydroxide.
The industry uses the term Lithium Carbonate Equivalent (LCE) to get an understanding of the market as a whole, or as the Aussies say, to compare "chalk and cheese".

This is a chemical conversion table however, that does not take into account the realities or costs associated with practically moving from one product to another. Which brings us cleanly to our next concept.
5. Value of lithium products IS NOT calculated based on contained lithium

The table above makes it tempting to apply the same logic to putting a price on lithium as one does in gold. Get a price for "pure lithium", and then multiply that number by the percent of lithium contained in your product. Wham, bam, thank you ma'am. Or as the Aussies would say, Bob's your uncle.
This is not, and never will be, how lithium behaves. I am careful to use the term "conversion" rather than "refining" when I describe processing lithium from one material to another product because this is a critical difference between lithium and other industries. Lithium alone is unstable and highly reactive. Its usefulness in batteries derives directly from this electrochemical reactivity. The majority of lithium that goes into the market never even passes through a "pure" metal phase, as that would be impractical and unnecessary.

For reference, in 2017 only three percent of total demand would fall into that category. As a rule of thumb, I steer clear of people who use words like "purify" and "refine" when talking about lithium because it is unlikely they understand the industry. Lithium from two sources is not interchangeable.
6. The Myth of Battery "Grade"

Even within one product category such as lithium carbonate, material is not interchangeable. For simplicity, let's just consider lithium carbonate. While the majority of battery quality lithium carbonate is 99.5% Li2CO3, that is by no means sufficient. Achieving the required percentage lithium carbonate does not matter so much as what exactly is contained in that last 0.5%. Cathode makers have to qualify each supplier and their product, and adapt their production process to allow for the impurities. If a cathode makers needs to change from one supplier to another, they incur a cost in controlling for the difference they will (not may - will) encounter.
There are also important shelf life considerations if the LME wishes to establish warehousing and a role in physical delivery. Lithium hydroxide starts to degrade shortly after produced and is likely unsuitable for battery use within a year. While lithium carbonate can be stored for longer, that does not solve the problem that it is not practically interchangeable from the standpoint of the buyer.
Finally, cathode and battery makers do not select which lithium product they prefer to buy based on price - the battery chemistry determines what lithium compound they can use to achieve desired characteristics, around which there are always tradeoffs. To learn more about different cathode chemistries, have a listen to episodes 7 and 8 of the Global Lithium Podcast, linked at the bottom of this article
7. In future batteries, metal will matter

If I could add an extra hour to every day, I would spend it researching solid state lithium battery technology because I think it's the most interesting, paradigm-shifting technology coming down the pipeline in the medium term. When it comes to batteries for use in the e-mobility sector, it makes no sense to shift away from lithium because it is relatively abundant, does not meaningfully impact the final price of a battery, and is irreplaceable in terms of energy density and performance.
It makes quite a bit of sense to use more lithium - in the form of lithium metal anodes rather than the current graphite anodes. While I do not expect this technology to be commercially viable for another five to seven years for a variety of reasons that we can discuss another day, a solid state lithium metal battery vastly improves the energy density and safe operating parameters of battery technology, theoretically unlocking new applications (think: electric planes).
I bring this up here because of two mental exercises the LME should undertake today. First, making lithium metal requires starting with a lithium chloride: neither lithium carbonate nor hydroxide. Second, making lithium metal is an energy intensive process. Solid state batteries will change the current lithium market dynamics, and should be on the radar.
Go to the mountain, Mohammed

These are challenges that will be difficult to overcome. Any discussion must acknowledge, address, and find solutions to create a meaningful outcome.
In his essays, Sir Francis Bacon retold a Turkish parable about Mohammed and the mountain. It the story, the prophet Mohammed called out to a hill to come to him, but when the hill stood still, rather than admit defeat, Mohammed said, "If the mountain will not come to Mohammed, Mohammed must go to the mountain". This story is used to illustrate that there are cases whereby if one cannot get his or her own way, he or she must bow to the inevitable.
In this instance, I urge the LME to take a page from this parable and when the laws of reality will not bend to your will, find a way to go to the science.
Post Script

PS: If you want to get a firmer grasp on the more technical aspects of battery chemistry and lithium chemicals, I recommend going back into the archives of the Global Lithium Podcast (Apple Podcast link is here) and listening the following episodes:

• Episode 7: Deak Dynasty, featuring Dr. David Deak and covering cathode chemistries and future battery technology
• Episode 8: It's a Small World After All, featuring Dan Blondal and Yingzi Feng of Nano One, covering cathode making and battery chemistry
• Episode 11: Lithium Family Values, featuring Carlos Galli, Daniel Galli, and David Guerrero in Argentina, covering brine chemistry
• Episode 13: Smooth Jazz and Soft Rock, Featuring Rene Leblanc and the team at Lithium Nevadas, covering extracting lithium from clay