Ground Breakers: Analysts see blue skies for lithium producers after Pilbara Minerals posts another record spodumene auction
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Another auction, another record for Pilbara Minerals (ASX:PLS), which has seen payments for the spodumene offered on its Battery Material Exchange platform more than triple in less than a year.
Founded on the principle the price for its battery grade lithium concentrate was too opaque, PLS held its first auction in July last year, drawing US$1250/t for a 10,000t cargo of 5.5% spodumene.
People went bonkers when that was first announced.
Yesterday PLS pulled in a mindblowing US$5955/t for a shipment of 5.5% Li2O concentrate, destined for the Asian battery market.
Incredibly, that offer masks the true value of the sale given standard contract and spot pricing is conducted on a 6% Li2O basis. On that measure PLS is getting paid the equivalent of US$6,586/t for the 5000dmt cargo.
#PilbaraMinerals again beats its previous record price in latest #spodumene auction. Just shy of $6k/t for this SC5.5 basis 5kt parcel for Jun-15 to Jul-15 delivery, up $305/t from the price fetched in late April.$PLS #Lithium pic.twitter.com/o6G199VTwz
— Peter Hannah (@PHmetals) May 24, 2022
Perhaps the most shocking fact about the new record is that came after a US$750/t fall in Fastmarkets’ assessed spodumene price last week, indicating profit margins and demand for battery producers remains very strong despite a pullback in market lithium chemical pricing.
That’s a positive signal for other major spodumene producers, according to RBC Capital Markets mining analyst Kaan Peker.
“The price equivalent is 35% above the current spot price in China (and 6% above the reported weekly Platts index price), and indicated that Chinese converters are willing to pay more for spodumene given the current lithium market conditions,” he said in a note to clients.
“We believe this is a good indication that underlying demand remains strong and that spodumene concentrate prices in China/Seaborne can still move higher.”
While lithium carbonate prices have pulled back marginally to US$69,000/t in recent weeks (from close to US$80,000/t around six weeks ago), Peker said the willingness to pay overs at the BMX online auction suggests converters in China are still profiting from the growth of the electric vehicle sector.
That price is still 400% up year on year.
“We expect the spodumene material auction will become more commonplace outside of China, improving the margins of mine operators,” he said.
The sale came the same day US lithium producer Albemarle, part owner of the Wodgina and Greenbushes JVs and Kemerton plant in WA, amped up its sales guidance from US$5.2-5.6 billion for this year to US$5.8-6.2b.
That increase reflects its confidence in the supply-demand dynamics of the spot market as it transitions lithium sales from outdated long-term contracts to more flexible index-linked contracts that capture the upside in current prices.
It is a notable shift in strategy and suggests a high degree of faith from the market’s leaders that demand for battery raw materials will keep rising, given the higher downside risk involved in linking to spot.
The ongoing profitability of Chinese converters is likely to provide some confidence to the emerging lithium chemical producers setting up stall in WA’s southwest.
Albemarle is closing in on first production at the Kemerton plant it is constructing with Mineral Resources (ASX:MIN), while fellow Greenbushes owners IGO (ASX:IGO) and Tianqi Lithium recently produced their first qualified battery grade lithium hydroxide at a long delayed refinery in Kwinana.
WA conglomerate Wesfarmers (ASX:WES) and Chilean lithium mining giant SQM are also planning to construct a refinery in the Kwinana industrial area in Perth’s south, to produce lithium chemicals from the approved development of their massive Mt Holland lithium mine near Southern Cross.