SANTIAGO (Reuters) – Opaque pricing for lithium, the powerful metal fueling the electric vehicle revolution, is expected to be in the spotlight this week as industry leaders gather in Santiago for more Transparency will be loud to attract much-needed customer expansion finance.
FILE PHOTO: Brine pool from a lithium mine at the US-based Albemarle Corp., seen in the Atacama salt desert in the Chilean Atacama Desert on August 16, 2018. REUTERS / Ivan Alvarado / File Photo
In contrast Copper or other metals used in the manufacture of electric cars are not traded for lithium. The London Metal Exchange is working to develop a tradable price for the white metal, but until then, investors, clients, analysts and industry executives have no idea of the global market.
"The fact that there is no reference price means that some banks were not interested in getting involved because they can not hedge their price risk," said William Adams, analyst at Fastmarkets host of the Santiago conference and candidate as a price provider for the LME contract.
For the time being, industry is picking up on everything it can find with data on the price of spodumene, a lithium-bearing hard rock; Prices of hydroxide or carbonate, the two main types of lithium that are used in batteries; or prices paid by battery manufacturers in China, Japan and South Korea.
"They are almost forced to only average the local price estimates," said James Calaway, chairman of ioneer Ltd, which is developing a lithium project in Nevada.
While spot prices in China have fallen in double digits since January due to uncertainty over electric vehicle subsidies, these prices reflect only part of global demand.
Some companies, including global market leader Albemarle Corp., sell almost all of their lithium through long-term contracts and are not affected by Chinese spot prices, a distinction that many on Wall Street do not seem to find.
The stock of Albemarle has fallen by 12 percent since January.
"The spot price in China is exactly what the market is watching, and until it sensibly recovers, sentiment will be negative," said Howard Klein, lithium analyst and partner of New York-based consulting firm RK Equity , "But the demand is there."
The Argentine Livent Corp. has cut its forecast for 2019 and warns that demand for a Chinese-made lithium version is slowing and selling the product elsewhere.
SQM's shares have fallen 19 percent since January and Livent's shares have lost 53 percent.
"Investors value the industry on the basis of the lowest price they receive from just a handful of companies because they do not have a reference price for the baseline analysis," said Ernie Ortiz, president of Lithium Royalty Corp. Subsidiary of Waratah Capital Advisors, which acquires license rights for lithium.
Many long-term supply contracts already relate to an LME price, an anticipatory step in defining future business parameters, Ortiz said.
"The LME continues to pursue the launch of a lithium contract in close partnership with industry users," said LME spokeswoman Bianca Blake. In addition to fastmarkets, Argus and Benchmark Minerals are trying to provide lithium pricing data, and a decision is expected soon, Blake said.
Despite the price uncertainty, demand is rising sharply. For example, Toyota Motor Corp. plans to generate half of its worldwide sales of electric vehicles by 2025.
The largest players in the lithium industry then sign new expansion business. Last fall, Albemarle signed a $ 1.15 billion joint venture with Mineral Resource Ltd to own and operate the Wodgina Lithium Mine in Western Australia. This contract extends Albemarle's expertise with Asian customers.
Ganfeng Lithium Co, which already owns several Australian companies, has spent $ 160 million to acquire its stake in an Argentine lithium project with Lithium Americas Corp. to increase.
Tianqi Lithium Corp., the world's largest lithium deal of all time, recently paid $ 4.1 billion a year for a nearly quarterly stake in SQM, part of a move by Chinese companies to increase lithium access.
Small and medium-sized businesses, however, find it difficult to raise funds because potential financiers could forego a negotiable lithium price, which could secure their investment.
Neo Lithium Corp., a pioneer of Standard Lithium Ltd., Sigma Lithium Resources Corp. and other potential lithium projects had problems attracting investors, largely due to this price uncertainty.
"Greater transparency is urgently needed," said Jake Fraser, metal analyst at Roskill.
A traded lithium price would cause this to be discussions with potential clients or financiers much easier, said Carlos Vicens, CFO at Neo Lithium, which is developing an Argentine lithium deposit.
"Our focus is on attracting a financier, a strategic partner, to get this project up and running as soon as possible," said Vicens.
(For a graphic on & # 39; Game of Mines & # 39 ;, click on tmsnrt.rs/2WiWp6o)
coverage by Ernest Scheyder; Additional coverage by Dave Sherwood; Editing by James Dalgleish