TRADE REVIEW:  Asian lithium prices to be steady in Q2 on measured demand, ample supply

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal , copper , alumina , cobalt , lithium , nickel and steel and scrap . We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

Asian lithium prices are likely to be largely steady around Yuan 100,000/mt ($13,800) in the first half of the second quarter even though participants do not discount the possibility of levels softening amid the prevailing oversupply, while demand is expected to remain rangebound well into Q2 after a modest uptick in mid-March.

There also appears to be a growing inclination among consumers to replenish stocks, particularly when lithium carbonate prices dip below Yuan 110,000/mt. The trajectory of prices beyond April, however, will hinge to a large extent on whether downstream demand picks up enough to curb downward pressure from oversupply.

Resurgence post Lunar New Year

Chinese lithium prices saw a seasonal lull during the Lunar New Year period over Feb. 3-10, but began to climb thereafter, driven in part by supply disruptions stemming from environmental regulation checks in the lithium carbonate production hub of Jiangxi and maintenances undertaken by some converters.

Lithium carbonate prices rose to a Q1 peak of Yuan 114,000/mt on March 18 from a low of Yuan 90,000/mt Jan. 10 amid these supply concerns. However, many sources said that the broader market's response to the checks in Jiangxi were somewhat exaggerated.

"While it appears that the only direction for prices is up after Jiangxi's supply disruptions, the extent of the price recovery has been mild so far," said Alice Yu, principal analyst at S&P Global Commodity Insights.

In H2 March, both lithium carbonate and lithium hydroxide prices remained relatively stable at Yuan 100,000-114,000/mt, supported by consumers restocking.

Although China saw a dip in electric vehicle (EV) sales, which hit a 13-month low in February, downstream demand showed signs of recovery in March due to increased production plans among cathode material and battery manufacturers, sources said.

"Prices in April could be supported further if the publication of stronger March PEV sales and traction battery production data [in China] justifies the demand optimism," Yu added.

In the seaborne market, South Korean and Japanese consumers exhibited limited spot demand over the same period. The Asian seaborne market was steady as a result, with traditional sectors such as the grease industry engaging in most of the spot deals.

"We've done very few spot sales to Japan and South Korea as nickel-manganese-cobalt (NMC) battery demand is not very good," said a Chinese lithium converter.

A Japanese trader said, "The Japanese are more conservative, we are struggling to sell materials."

Prices for battery grade lithium carbonate and lithium hydroxide on CIF Northeast Asia basis were rangebound at $13,000-$15,200/mt throughout Q1. Platts assessed both at $14,100/mt April 12, showed S&P Global data.

Concerns, opportunities after futures

Activity in the lithium market had gone up after the China-based Guangzhou Futures Exchange (GFE) launched its lithium carbonate futures contract in July 2023, potentially offering better profit margins and lowered price risks from hedging.

Many traders also actively sought feedstocks like spodumene in a bid to lock in prices by hedging lithium carbonate on the exchange. The GFE also offered traders arbitrage opportunities, including the ability to source spodumene from Australia, Brazil, Canada and Africa, as well as industrial-grade lithium carbonate and lithium hydroxide to be processed into battery-grade lithium carbonate for delivery to the exchange.

However, the exchange currently lacks brand differentiation and market sources expressed uncertainty over the quality of products received from it. A Chinese lithium producer said that consumers who are more particular about brands tend to purchase directly from their converters of choice.

"As long as it fits the specification, I think GFE hopes that larger brands would participate [in the exchange] more actively to accommodate more brands," a Chinese trader said.

There are also lingering concerns about whether the exchange numbers are truly representative of market fundamentals, with many sources saying that the futures are "often driven by market sentiment."

Spodumene auctions in March

Spodumene prices also increased in the second half of Q1, following the uptrend observed in Chinese lithium.

Pilbara Minerals, an Australian mining giant, had accepted a pre-auction offer of $1,106/dmt on an SC5.5 CIF China basis on March 14 for delivery of 5,000 mt of spodumene in December.

With an estimated processing cost of Yuan 30,000/mt, the production cost of lithium carbonate derived from the pre-auction price was around Yuan 103,000/mt inclusive of 13% VAT, according to S&P Global's calculations.

The pre-auction was immediately followed by downward selling pressure for lithium futures contracts, which dropped closer to the projected lithium carbonate cost.

Platts assessed lithium carbonate at Yuan 108,000/mt March 14, down Yuan 5,000/mt day on day due to lower offers in the spot market.

The margins for producing lithium carbonate from spodumene and lepidolite in China remain unfavorable considering current lithium salt spot prices, sources said.

Platts assessed spodumene at $1,150/mt March 31, up $180/mt through Q1, and spodumene concentrate with 6% lithium oxide content was assessed most recently at $1,100/mt FOB Australia on April 12, showed S&P Global data.

Based on the spot market prices at the time, the cost of producing spodumene in Q1 was consistently over 80% of the lithium carbonate price. Moving into Q2, market sources expect spodumene prices to be in the range of $1,100-$1,200/mt.