Ground Breakers: Pilbara pulls in another bonanza lithium price, market still hot, hot, hot
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Pilbara Minerals (ASX:PLS) has seen a pullback in lithium prices at its Battery Material Exchange auction for the first time since it launched the platform one year ago.
But don’t be too sad for the WA miner, which is still raking in the dough from the near record price achieved in the online sale yesterday.
PLS will launch a 5000dmt cargo of 5.5% lithia spodumene to a lucky buyer for US$6188/dmt.
Regarded as the dregs of the Pilgangoora offerings (at 5.5% the product falls well short of the benchmark 6% Li2O grade used in spodumene benchmarks), that puts the sale at an equivalent price of US$6841/t.
Down, we know, from the US$7017/t 6% price received in a pre-auction bid last month, but still extraordinary given the first auction last July garnered a price of just US$1250/dmt (5.5% basis).
That shows lithium chemical prices of US$73,000/t for lithium carbonate and US$75,000/t for lithium hydroxide in China are just about right given the clear imbalance between supply and demand in the lithium space.
To that point, PLS fielded 41 bids in just 30 minutes. At the third auction in October last year it saw 25 bids in a 45 minute window.
Making the necessary adjustments to SC6 & adding freight the conversion to a chemical price in China (VAT incl & allowing for a converter margin) we’re still looking at ~$73k/t. July maintenance shutdowns in China will limit chemical supply & may have affected the auction. https://t.co/Q4P75efSFa
— Rodney Hooper (@RodneyHooper13) July 13, 2022
It’s been popular lately to say the lithium and broader battery metals sector has lost its steam after a stunning rise in late 2021 and early 2022 brought about by soaring lithium prices and EV demand.
But bearish sentiment around the global economy and some nasties in reports from mainstream banks like Credit Suisse and of course Goldman Sachs have brought lithium miners back to the pack.
PLS is down around 35% over the past six months, but there are indications the sell-off has stalled amid positive stock related news.
The Pilgangoora owner is up almost 12% over the past month, rising 1.91% this morning to $2.40.
At current prices its margins are outstanding, with an FID on a major expansion of its Pilgangoora mine from 540,000-580,000tpa to 640,000-680,000tpa (and early investment in a potential expansion to a whopping 1Mtpa) complementing what is expected to be an almost $600 million cash build in the June quarter.
Mt Cattlin lithium mine owner Allkem (ASX:AKE) is still a monthly loser, but saw its shares lift 1.87% on the PLS news.
The PLS auction results are closely watched as a price discovery mechanism for the spot market.
Spodumene and higher value lithium chemicals were previously traded on long term contractual arrangements, which were about as opaque as the box holding Schrödinger’s cat.
Legacy miners like Albemarle and SQM have been shifting their strategy to increase their exposure to index prices as battery makers and car manufacturers battle to secure supply.
“We’re seeing lithium go from being quite a small and niche market where prices can be fixed and agreed for long durations to one that is requiring much more dynamic pricing to keep pace with the ever-changing supply and demand picture,” Fastmarkets senior price development manager Peter Hannah said in an interview on the price agency’s website.
“The current price volatility in the market is seeing this transition accelerate with contracts for both existing and new supply increasingly being negotiated to reference spot indices in some fashion.
“The spread of value across spot to contract prices in lithium in recent years is a reflection of the market’s immaturity with respect to pricing. It’s not something seen to the same extent in other, more developed, markets.
“In time, lithium will likely gravitate towards linking contract price settlements to certain key spot benchmarks. Importantly though, we would still expect considerable variability in contract price realisation depending on the negotiation of premiums and discounts to reflect product quality and commercial complexities.”
According to Fastmarkets, spot spodumene prices were most recently quoted at US$6625/t, a massive rise from less than US$1000/t a little over a year ago.
A little bit of respite for resources investors as Chinese economic data looked a little stronger than expected.
Exports lifted at the fastest rate in five months, while Chinese iron ore imports at 88.97Mt were just 0.5% lower than June 2021.
Stats also showed its demand for copper and copper ore – an economic bellwether – were much higher, up 25.5% and 23.3% YoY respectively to 537,698t and 2.06Mt.
That sort of news saw buying pick up in the Pilbara majors, with materials up 1.79%.