10 Aug, 2023

Price clarity to underpin lithium capacity build-out Down Under 

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By Anthony Barich


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Spodumene from the bulk testing program for Liontown Resources' Kathleen Valley lithium project in Western Australia. CEO Tony Ottaviano wants to establish a spodumene index.
Source: Liontown Resources

Transparent and reliable pricing for the lithium mineral spodumene is crucial to support the next generations of mines Down Under, and some Australian companies are already making moves to bring more transparency to lithium prices.

Spodumene pricing in Australia, the world’s largest lithium producer, remains relatively opaque. Prices are one of a range of important signals investors rely on in any industry or business venture, and the challenge for new markets or commodities is that price discovery is often difficult, Minerals Council of Australia (MCA) CEO Tania Constable told S&P Global Commodity Insights.

"This is further exacerbated where vertical integration and a lack of market liquidity reduce market price disclosure and therefore increase uncertainty for traders and investors," Constable said. "The MCA supports industry initiatives that aid price transparency and consequential reduction of uncertainty for investors and traders."

One example of the challenge was when market participants were surprised during Pilbara Minerals Ltd.'s 2021 auction of spodumene from its Pilgangoora lithium operation in Western Australia. The winning bid was US$1,250 per metric ton for 5.5% spodumene concentrate, which was well above the US$900/t maximum price reference for spot sales on the digital trading and sales platform Battery Materials Exchange at that time.

More recently, the Platts 6% spodumene FOB Australia price was assessed at $3,200/t on Aug. 4, down 49% year over year, but still higher than 2021 levels.

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New spodumene exchange

Liontown Resources Ltd. plans to create a transparent spodumene exchange to address the "opaque" nature of lithium pricing, CEO Tony Ottaviano told Commodity Insights Aug. 7 on the sidelines of the Diggers and Dealers Mining Forum in Kalgoorlie, Australia. Ottaviano added that a more transparent index would help Australian producers and smaller players get funding to develop projects because banks would have a clearer idea of the spodumene market's forward curve.

Liontown's strategy from the start was to make ex-China offtake contracts, Ottaviano said. Hence, close to 90% of its production is locked into agreements with Tesla Inc., Ford Motor Co. and LG Chem Ltd. The rest will be sold on the spot market.

"I'm of the view that the quicker we get to a globally traded product on an index that's more reliable, transparent, has governance and can be audited, the better we will be," Ottaviano said. "Ultimately, I would like [the index] to be spodumene, which is why I'm leaving a percentage of my production uncontracted so I can sell into the spot market and create a spodumene index."

When asked about Ottaviano's desire to create a spodumene exchange, Core Lithium Ltd. CEO Gareth Manderson said: "It's definitely something Core is looking at." Core last month appointed a new executive general manager of commercial and marketing "to start to unpack pricing in particular," Manderson said.

"The more mature [the market] is, the greater liquidity there is, then the easier it is for us to get an understanding of what's happening in the market," the CEO said.

Most of the market continues to be traded in contracts that are "on a confidential basis between customers and suppliers" rather than on the spot market, Allkem Ltd. CEO Martín Pérez de Solay told Commodity Insights in July. The bulk of the market continues to clear on specialized contracts, dampening the need for a global lithium price.

"I can understand the willingness to have more clarity, but ... it's [more] about understanding that lithium is not a commodity," Perez de Solay said.

Still, IGO Ltd., part-owner of the world's largest hard-rock lithium mine, Greenbushes in Western Australia, is "encouraging of trying to get more transparency in pricing mechanisms," acting CEO Matt Dusci told reporters at the Diggers and Dealers Mining Forum.

"The challenge of that is the infancy" of the lithium industry, Dusci said. "It's going to be interesting to see what that pricing mechanism is, whether it's actually going to be one of the raw materials [like spodumene] or linked more to the chemicals at the back end."

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.

The Platts spodumene 6% FOB Australia price is an offering of S&P Global Commodity Insights. S&P Global Commodity Insights is a division of S&P Global Inc.