Pilbara Minerals' Pilgangoora lithium-tantalum project, Western Australia, whose product is fetching record prices. Source: Pilbara Minerals.

➤ Lithium is entering a new era of transparency after years of being notoriously opaque due to private contracts and having not been historically traded on a public platform, according to Ken Brinsden, CEO and managing director of Australian lithium producer Pilbara Minerals Ltd.

➤ New measures in 2021, such as the London Metal Exchange's battery-grade hydroxide cash-settled futures contract launched in July and the Battery Material Exchange, or BMX, platform through which Pilbara Minerals has now held two auctions for 10,000-tonne and 8,000-tonne cargoes, is helping to facilitate this transparency.

➤ This transparency will lead to more financial instruments, greater investment and more production of lithium, Brinsden said.

Pilbara Minerals' ASX share price hit a record-high A$2.45 on Sept. 15 upon accepting a bid at its second digital auction on the BMX of US$2,240 per dry tonne for an 8,000-tonne cargo of lithium spodumene concentrate from its West Australian Pilgangoora project. Spodumene is processed into lithium chemicals for electric vehicle batteries. Benchmark Mineral Intelligence said the winning bid was double the peak of the previous lithium price rally and indicates rising costs of such feedstock. The Sept. 15 share price also mirrored the Aug. 11 record achieved within a fortnight of the BMX's first auction. S&P Global Market Intelligence spoke with Pilbara Minerals CEO and Managing Director Ken Brinsden about the current and future impacts of greater transparency on the lithium market. The following conversation was edited for clarity and length.

Pilbara Minerals Managing Director and CEO Ken Brinsden. Source: Pilbara Minerals

S&P Global Market Intelligence: Your share price has risen more than any other time in terms of percentage change, including the 2017 lithium boom. What's going on in the lithium market at the moment to explain this?

Ken Brinsden: We would presume equity markets are working on the premise that pricing is heading higher and/or stronger for longer, in both spodumene and lithium chemicals. It is now clear that there is a material shortage of spodumene to backfill chemical conversion capacity within China, and it might be that shortage means the industry can't even fulfill existing chemical supply contracts.

Have lithium prices always been at this level and we're just seeing it now that we have some price transparency with the BMX, or is this a genuine new phenomenon?

The last time spodumene peaked was approximately late 2017, coincident with highs in chemical pricing. The highest price cargo out of Western Australia was about US$950/t in 2017, when chemicals were roughly US$24,000/t of lithium carbonate equivalent. The higher price this time is because a greater proportion of the available margin is being paid to the miners than was historically the case.

How does the level of transparency that the BMX brings compare with the LME's futures contract?

While both likely contribute to transparency in the lithium market, they are doing slightly different things. Our BMX platform is a more efficient way of accessing multiple buyers in China with whom we may not have otherwise established sales relationships. In addition, the platform provides a forum for the competitive tension in the market to find the right market price. The objective of the LME initiative is to build out a more sophisticated futures platform that supports trade.

What is prompting this evolution in the market?

I see them both being natural evolutions in a market that is growing both in volume and liquidity, becoming more sophisticated and looking for tools to support capital flows. Many markets have been down this path over history, and there is no reason to think that lithium raw materials will really be any different.

What does this mean for future investment in lithium production coming from both planned capacity and exploration companies working on new projects?

The market will inevitably evolve, with further transparency being a spin-off of the above measures. The markets will inevitably capture more volume and more players, and as a result, more sophisticated financial instruments will emerge, all of which support further capital investment. That said, it is not a process that happens overnight, but rather probably over the next couple of years.

Does this mean we will see another saturated market in the longer term, with the plethora of companies out there looking to develop new projects globally?

There is always that risk, however, it is also fair to say that the demand growth kicking in now stretches well beyond China — to Japan, Korea, Europe and over time the North Americas — with most global markets pushing hard into electrification themes for which lithium-ion batteries are a key co-commitment.