Lithium prices within China, as assessed by Benchmark Mineral Intelligence, are beginning to rise for the first time in three years marked by rises in Chinese domestic chemical prices throughout Q4 2020, bringing an end to lithium’s two-and-a-half year bear market.
Benchmark’s Lithium Carbonate, EXW China Battery Grade, prices have increased by 11.7% from an average of $6,000/tonne in Benchmark’s October 2020 Assessment to an average of $6,700/tonne at the end of December.
Likewise, prices of Benchmark’s Lithium Hydroxide EXW China Battery Grade, have increased during the same period, albeit at a lower rate of 2.6%. Increasing from an average of $7,750/tonne in Benchmark’s October Assessment to $7,950/tonne and by the end of 2020.
While prices remain low, and flat, around the rest of the world, improving sentiment across the spodumene and chemical sectors is creating positive momentum for contract negotiations from Q1 2021 onwards.
Lithium enters a rising price environment
For Benchmark’s Lithium Price Assessments, it is crucial to not only gain the granular detail (data and contextual evidence) that makes us the lithium industry’s reference price, but to also be able to call any rising price data points as a prevailing trend.
Since prices began to fall in 2018 there have been periods where both lithium carbonate and hydroxide prices have shown short-term rises. But these increases were isolated and not sustained.
However, this time is proving to be different.
For the last 6 months of 2020, all major lithium chemical prices that Benchmark collects were essentially flat lining together in unison for the first time since lithium prices peaked in Q1 2018.
In essence, lithium prices have bottomed out after nearly two years of declining prices.
While prices have bottomed out in the rest of the world, China, as Benchmark’s Lithium Price Assessment shows, has seen consistent price rises in both lithium carbonate and hydroxide during the same period.
Why are lithium prices rising?
The main driver behind the upward movement of lithium carbonate prices in China is the strong growth in lithium iron phosphate (LFP) cathode which is finding renewed interest in passenger EVs in addition to electric buses.
Although China’s EV subsidies have been maintained, there is less incentive – particularly at current raw material pricing – to push towards the higher-nickel chemistries that fuelled the focus on NCM 811 around 2018.
In addition, the improvements that have been made in LFP cell-to-pack design mean that LFP can now compete on energy density terms with mid-nickel NCM variations. This within the context of improved battery demand sentiment moving into the new year saw a run on lithium carbonate volumes towards the end of Q4.
As was demonstrated in the industry’s previous price spike, which began in late-2015, demand growth at a rate that exceeds industry expectations can have profound implications for the future growth trajectory, and China has often proven a bellwether for the direction of global prices, with greater liquidity in the domestic market making pricing more responsive to market imbalances.
While it is too early to say whether this could be replicated in 2021, a reversal in the relationship between carbonate and hydroxide in China’s domestic market has often marked the peaks and troughs of lithium’s price cycle. The turnaround in pricing in late-Q4 could be an indicator of more turbulence in 2021.
The lithium industry’s reference price
Benchmark sets the lithium industry’s reference price in its monthly Lithium Price Assessment service.
Benchmark collects and assesses data on 6 lithium carbonate, 4 lithium hydroxide and 1 spodumene concentrate price from various lithium hubs around the world.
These lithium prices are used by major actors in the supply chain to discuss and negotiate lithium contracts.
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