COLUMN-Lithium collapse puts China spot price in spotlight: Andy Home

By Andy Home

LONDON, May 19 (Reuters)The high-flying lithium has returned crashing to earth.

A heated two-year rally, which saw Chinese lithium carbonate spot prices surge tenfold, reversed sharply in the first part of this year. The spot price fell 70% between November and its low point in April.

The battery metal was knocked down by weakness in China’s electric vehicle (EV) market earlier this year, still by far the largest in the world.

The temporary demand impact rippled through the Chinese battery chain, generating a collective destocking cycle and killing the spot market.

The fall in the spot price in China has driven the entire lithium price chain from spodumene concentrate to hydroxide, albeit to widely varying degrees.

The impact on prices appears outsized compared to what was a short-term mismatch of supply and demand in China’s domestic market, where the spot price is already rebounding strongly.

But the lithium roller coaster highlights the important role China’s spot market and Wuxi futures exchange play in the fast-growing industry’s price discovery process.


The Chinese lithium carbonate spot market is a small and volatile component of the global lithium price structure, and price signals can be extreme relative to what is happening elsewhere in the supply chain.

Lithium carbonate prices outside of China have fallen this year but not to the same extent, while hydroxide prices have been even more resilient.

The large volumes traded directly between lithium producers and consumers are based on longer-term contracts, often with fixed-price components, protecting them from spot market volatility.

Chilean producer SQM SQMA.SNfor example, reported an average realized selling price of $51 per kg in the first quarter, up from $59 per kg in the fourth quarter of 2022, but up from the $38 reached a year ago.

American producer Livent LTHM.N told analysts on its first-quarter conference call that “we continue to expect a continued increase in our average realized prices in 2023 across a broad range of market scenarios.”

The company has about 70% of its 2023 sales committed to annual fixed-price contracts, many of which include take-or-pay terms, and has “a high degree of confidence around an expected average price increase of 40% on these volumes.

In other words, many lithium buyers will pay higher prices this year no matter what happens in the Chinese spot market.


The lithium carbonate spot market in China appears to be centered on physical transactions of “engineering-grade” materials, which cannot be used directly in batteries but which, with further refining, can be made into hydroxide ready for use. The batteries.

The appeal of this type of lithium is that it’s easier to store and less likely to be committed to consumer contracts, according to Benchmark Minerals analyst Adam Megginson.

Physical spot trading coexists with futures trading on the Wuxi Stainless Steel Exchange, which launched its lithium futures contract in July 2021.

The relationship between actual demand and futures prices in China is “unclear”, to quote Benchmark.

What is increasingly clear, however, is the outsized role Wuxi can play in the global lithium supply chain.

The collapse in the spot price in China far outpaced the drop in the price of Australian spodumene, another closely watched market indicator. The result has been the crushing of converter margins in China, leading to temporary shutdowns.


Wuxi’s ascendancy as a lithium market signal is because it provided a rare point of price transparency in a highly opaque market.

The lithium industry has resisted any move towards futures trading on the grounds that the product is not a commodity but a bespoke chemical tailored to the needs of each battery manufacturer.

But if the market isn’t going to be beholden to the wild East China spot market, it might need more, not less, futures trading.

A possible alternative may be the US exchange CME CME.O.

CME launches its lithium hydroxide contract LTHc1 in May 2021, but attracted little attention until the last months of 2022.

Volumes hit a record high of 1,134 contracts in April, while open interest exploded to 1,635 contracts from 429 in December and just 5 at the end of 2021.

It’s probably no coincidence that activity surged in the fall in lithium prices, although the mix of hedging and speculation is uncertain.

A successful Western futures benchmark price would act as an important counterweight to the Wuxi price.


The lithium market is now on the rebound, driven again by the Chinese spot price MB-LI-0036which jumped to 295,000 yuan from 182,500 at the end of April, according to Fastmarkets.

The Chinese electric vehicle market is regaining lost momentum and the domestic destocking cycle is coming to an end.

In the event of a resupply, the price reaction will likely be as extreme on the upside as it was on the downside during the first part of this year.

The first sign of recovery came in China’s technical-grade carbonate market. Benchmark Minerals noted a slight rise in prices at the end of April after six months of an unrelenting downward trend.

The price rebound, according to Benchmark, was initiated on the Wuxi Stock Exchange as traders bought warehouse space two weeks earlier.

Futures optimism spilled over into the physical spot market, although Benchmark warned at the time that the price rise did not reflect a real shift in consumer demand, but rather “market expectations among a small group of well-informed actors”.

But the Wuxi Effect is at work again, lifting the entire commodity price chain from its April price lows.

It may be time for the industry to embrace greater price transparency, rather than a small group of traders jostling the global supply chain.

($1 = 6.9121 Chinese yuan renminbi)

The opinions expressed here are those of the author, columnist for Reuters.

Fastmarkets assessments of lithium carbonate and spodumene prices

(Editing by Jan Harvey)

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