Albermarle Initiates Lithium Auctions
Exhibit: Spodumene Spot Price Trend, March 2023 – Present
Note: minimum 6% Lithium Oxide, cif China
Source: Fastmarkets
Key Points: Albermarle, a leading lithium producer, is introducing auctions; arguably this can improve price discovery and transparency, particularly for strategic buyers. Pricing may be finding its footing after an 85% drop. Price perception today is heavily influenced by Chinese exchange trading, which is said to be driven by speculators.
Albermarle conducts first of a series of auctions. In late March, leading Lithium (Li) producer Albermarle (NYSE: ALB) auctioned 10,000 metric tons of chemical-grade spodumene concentrate, a source of high purity Li. The company has indicated that it will conduct a series of auctions; Bloomberg noted ALB will auction 100 tons of battery-grade carbonate on April 2 and Fastmarkets reported that ALB is planning its next spodumene auction for April 24.
Although not necessarily apples-to-apples, ALB appears to be stepping in to auctions as a competitor steps away from them. Australian miner Pilbara (ASX: PLS) is reportedly pausing its spodumene auctions after having committed most of its product for 2024.
Auction pricing may point to “stronger” demand by strategics. ALB reportedly received ~$1,200 per tonne in the recently completely auction, approximately 15% higher than the midpoint of market intelligence agency Fastmarkets’ most recent spot price assessment (see Exhibit). (The implied premium actually appears modestly higher because the auction basis was ex-works, in which arrangement of shipping generally falls on the buyer, vs. Fastmarkets’ cost-in-freight basis, in which arrangement falls on the seller).
Intent of auctions is to aid price discovery and provide transparency from and to strategic buyers. Per initial reporting of company statements, ALB intends the auctions to aid in price discovery and transparency. The ALB auctions can offer “hard” pricing reference points from strategic buyers relative to what the market perceives as price measures that are heavily influenced by speculative forces in China currently.
This Chinese speculative influence takes its shape in the Guangzhou Futures Exchange (GFEX)-traded Li carbonate contract. The GFEX contract was only introduced in July 2023, but it has grown open interest (the total number of derivatives contracts that haven’t been exercised or closed) to over 300,000 tons. GFEX volume and price volatility is reportedly spurred by large amounts of speculative interest (as opposed to strategic activity from buyers); it is also reportedly difficult for non-Chinese entities to access the market.
For reference, recent trading on the CME in its Li (hydroxide) contract had open interest of ~23,000 tonnes — and is considered a success as it has only been listed since 2021. The London (LME) and Singapore exchanges have reportedly seen very little activity.
It is worth noting that other factors may have a bearing on the relative popularity of the GFEX contract. It is physically-settled, while those on the other exchanges are cash-settled. And the GFEX is that much closer to the 2/3 of the world’s Li that is processed in China, which creates a natural hub. That said, it is also believed that the GFEX’s growth has helped CME contract growth through arbitrage trading.
Auctions may also encourage commodity traders. With prices ~80% below 2023 highs but up ~25% from February 2024 lows (see Exhibit), ALB may be hoping to encourage opportunistic commodity traders to step in.
March 28, 2024