Lithium producers using auctions to fetch higher prices amid market downturn

Lithium producers say they are using auctions to get higher prices than what is assessed by price reporting agencies, as demand for the battery metal rises amid the energy transition.

Before lithium demand took off, the market did not have a public trading platform and trading was mostly done through private contracts. Now, several price reporting agencies (PRAs) are providing price assessments to the industry, while the London Metal Exchange and the Guangzhou Futures Exchange have launched futures markets for lithium.

But with the 2024 slump in lithium prices crunching margins, producers say they are directly testing the market value through spot auctions that are generating higher prices than reported by PRAs.

Companies are expected to keep holding auctions to get their desired prices amid a market downturn, market participants and experts told S&P Global Commodity Insights.

"We see this as a responsible approach to price discovery that can lead to fair product valuation — for both buyers and sellers — and drive toward a more robust, sustainable market," US lithium giant Albemarle Corp. said in a statement emailed to S&P Global Commodity Insights.

Unlike other commodities, the lithium sector does not follow a single benchmark price. Instead, most producers settle contracts and determine prices using a basket of PRA assessments. PRAs can take into account data from market participants including buyers, sellers, consumers and miners.

Auction option

Lithium companies fetched higher prices through auctions in 2022, when slowing demand for electric vehicles and rising COVID-19 infections weighed on market prices.

"Auction prices provide an extra means of price discovery and add to market transparency," said Alice Yu, an analyst at Commodity Insights' Metals and Mining Research team.

Producers have used auctions less as the effects of the pandemic waned and prices took off amid the accelerating energy transition. But lithium prices are dropping again amid a supply glut and a global decline in EV sales.

The Platts lithium carbonate CIF North Asia price stood at $14,250 per metric ton on May 23, plunging 81.8% from a four-year high of $78,200/t recorded Nov. 30, 2022. Meanwhile, the Platts lithium hydroxide CIF North Asia price sank 83.2% to $14,250/t from a four-year peak of $84,700/t recorded Nov. 28, 2022. Platts is a part of Commodity Insights.

Several lithium companies are testing the market again via auctions under the belief that price reporting agencies have exaggerated the price decline and higher prices can be found. So far, auctions are producing higher prices.

Albemarle's two lithium spodumene auctions on March 26 and April 24 added price transparency and raised the spot spodumene price by about 10% each time, according to Yu. The company said it has been "encouraged by the results" of its auctions and plans to continue doing it in the future.

In late March, Australia-based Mineral Resources Ltd. said it sold lithium spodumene concentrate at $1,300/t through digital auctions. This is 13%-20.4% higher than the Platts lithium spodumene 6% FOB Australia price that ranged from $1,080/t to $1,150/t between March 18 and March 28. The company said it is looking to put parcels of its products through auctions to generate price transparency.

"It's clear the market is waking up to the future demand for lithium that is required for the global energy transition as long-awaited supply projects slow down or fail to materialize," Joshua Thurlow, Mineral Resources CEO, said in a statement sent to Commodity Insights.

In April, Brazil-headquartered Sigma Lithium Corp. said it achieved a higher price for its lithium through an "auction-price discovery process" compared to the London Metal Exchange Lithium Hydroxide CIF/Fastmarkets CJK price.

Another Australia-based producer, Liontown Resources Ltd., also welcomed the recent lithium auctions and said it plans to allocate about 10% of its production for sale on the spot market "to drive liquidity and transparency in the market."

"The resumption of spot cargo auctions by lithium companies is a positive step towards driving greater price transparency for the industry," a Liontown spokesperson told Commodity Insights.

Impartial assessments

Lithium auctions will continue as long as producers harbor doubts about the current pricing system, according to Joe Lowry, president of Global Lithium LLC, a provider of advisory services for the lithium industry.

"Lithium producers clearly think the current PRA model isn't serving them," Lowry told Commodity Insights in an email.

Platts said its independence makes its price assessments impartial.

"Platts, part of S&P Global Commodity Insights, in its role as an independent price reporting agency, aims to bring transparency to the marketplace through its price assessments and with no vested interest in the price of the commodities we cover, we are able to provide impartial price assessments that reflect prices of buyers and sellers in the open market and an end-of-day, repeatable value," Kathleen Tanzy, director for strategic industry communications at Commodity Insights, said in an emailed statement.

"Use of these price assessments is voluntary, as is participation in the price assessment processes we conduct," Tanzy added.

Fastmarkets Global Ltd., which provides pricing information for the London Metal Exchange's lithium futures market, said PRAs can "interact with data points beyond direct liquidity" by including not just trades but other market activities "to discover an open and competitive spot price."

"Producer-run auctions and Fastmarkets share the same goals of supporting the evolution of the lithium market towards more spot activity, promoting price transparency, and facilitating price discovery," Perrine Faye, Fastmarkets' global head of pricing, said in an emailed statement.

Fastmarkets believes that PRAs and companies can work together to develop a true benchmark price for lithium.

"The use of auctions or trade platform data, alongside PRA prices, have helped to establish a number of successful benchmarks in other markets," Fleur Ritzema, Fastmarkets' editorial and pricing director for nonferrous metals, said in an email.

Liontown said it is in talks with PRAs to develop a reliable index pricing mechanism. The company is also interested in promoting a shared industry trading platform where market players can report contracted and spot sales.

"Ultimately, a global ore-type shared platform, through which all market participants can trade, shapes as the optimum solution for lithium price transparency, in our opinion," a Liontown spokesperson said.

The Platts lithium carbonate CIF North Asia and lithium hydroxide CIF North Asia price assessments are offerings of S&P Global Commodity Insights.