In a recent interview, Tony Ottaviano, SEO of Liontown Resources, said that the challenging macro-economic backdrop had crimped purchases of electric vehicles (EVs) and created a drop-off in sales.
“Our customers are telling us that higher interest rates have increased the monthly cost of repayments for vehicles purchased through leasing arrangements, which has hurt consumers, especially in North America and Europe,” he added.
Some car manufacturers, like Tesla, have cut prices and sacrificed margins to meet the price point that was attractive for customers, he noted. Other original equipment manufacturers have been unable to complete with this and have seen sales fall as a result, Ottaviano said.
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“As a result, we’ve seen an over-build of [lithium] inventory in China in anticipation of higher demand, and when demand came off, inventory needed to be offloaded. That inventory is effectively like pseudo-supply – it was going to be consumed, but now it’s additional supply,” he added.
Similarly, there was an over-build in batteries, especially in stationary storage, following Chinese government incentives for stationary batteries in coal-fired power stations, Ottaviano said.
The questions now, Ottaviano told Fastmarkets, are what the catalyst for a rebound in lithium demand will be and when the battery and EV supply base will unwind.
The lithium sector itself is seeing early signs of supply restraint, but March quarterly reports will provide a clearer picture of cash build and will therefore give a much more telling picture of how the industry is coping with current challenges, he noted.
The decline for lithium prices has already led several producers to embark on major cost-cutting reviews, which include deferring projects or curtailing capacity.
Liontown has said it is reviewing the expansion of its Kathleen Valley lithium project in Australia. However, it will push ahead with its 3 million tonne per year plant capacity design currently under construction.
Extreme spodumene price volatility
After falling by nearly 90% since January 2023, spodumene prices have started to rise for the first time since May 2023.
Fastmarkets assessed the spodumene min 6% Li2O, spot price, cif China at $900-1,050 per tonne on Wednesday, March 6, up by 5.41% from $850-1,000 per tonne on March 1.
At their peak, spodumene prices reached over $8,000 per tonne in December 2022, a move that Ottaviano said can be partially attributed to a scarcity of supply at a time when car manufacturers and battery producers were gearing to stock up to meet overly ambitious targets.
No one believed $8,000 per tonne for spodumene was sustainable, he said, adding that neither is $800 per tonne sustainable to induce the required supply into the market.
“I’m glad that things have moderated back because it’s a stronger base on which to build for the future. The catalyst for a price to start to rise is when the lithium industry recalibrates to a more normalized demand and works out what the appropriate inventory levels for that are,” he told Fastmarkets.
Prices will normalize to a much more realistic level where the industry is in balance as the market matures, he said.
“Because, let’s face it, there isn’t a business in any sector that can tolerate an 80% reduction in its revenue in twelve months; the only option you’ve got as an industry leader to react to that is closure. You can’t respond, you can’t get costs out that quickly,” he noted.
“I think we’re starting to see shoots coming out of Chinese Lunar New Year, and the March quarterly results will be another barometer. We’ll probably start seeing some change at the back end of this year,” he added.
Platform for physical market pricing
Ottaviano called for the creation of a transaction-based platform for physical market pricing, similar to GlobalOre and Corex, which are used by the iron ore market.
“For me, it’s very important that we quickly and rapidly move to a market-based pricing mechanism that is transparent, auditable and with good governance. We’ve seen other commodities that were traditionally reliant on negotiation-type platforms move to indices-based, transaction-based platforms,” he said.
“Iron ore, coal, liquified natural gas have all undergone this pricing transition. Lithium also needs to move there, and it needs to be industry-supported, by both customers and producers,” he added.
GlobalOre was founded in 2012 by industry participants from the mining, steel manufacturing and physical commodities trading sectors including Baosteel, BHP, China Minmetals, Glencore, Rio Tinto, Vale and Valin Steel.
In the same year, Corex was launched, backed by participants including the China Iron and Steel Association, China Baowu, Ansteel, Hesteel, Shougang Group, China Minmetals, Citic, Sinochem, Vale, BHP Billiton, Rio Tinto and Fortescue Metals Group.
The global benchmark pricing system for iron ore ended in 2009; the vast majority of transactions have since been linked to spot prices. The development of electronic trading platforms from 2012 onward led to many changes in the iron ore spot market. Fastmarkets includes price data from both GlobalOre and Corex in its index calculations.
Fastmarkets’ iron ore indices are tonnage-weighted calculations, where actual transactions carry full weight, as reflected by the reported volume, while offers, bids and market participants’ own estimates of the market are weighted at the specified minimum tonnage for the respective index.
According to Ottaviano, iron ore prices have remained stable since the introduction of iron ore indices.
“The iron ore price very rarely moves above and below $100 per tonne for a long period of time, so everyone’s planning accordingly, and there’s a decent margin to be made,” he told Fastmarkets.
This also allows companies to plan future expansions and have a better view of prices in the long term, he noted.
“It needs to have a reliable price reporting agency, like Fastmarkets, and I think the lithium industry would be better for it because whilst everyone loves the 80% increase in price, from a producer perspective you can’t plan strategically when the price is going up like this. If you’ve got a much clearer, more stable view of the outlook, you can plan expansions much more responsibly, so you don’t get these amplified cycles,” he added.
Ottaviano said the industry needed to determine which lithium product the platform would be used for.
“You need a marketplace to transact [lithium] – it’s not an auction, and you can still have customer contracts. But counterparties have to agree to submit pricing data under a confidentiality agreement, which will in turn be reviewed and then published by the independent marketplace,” Ottaviano said, adding: “This is why industry participation is critical.”
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