Chinese lithium carbonate-hydroxide price spread at record high

A shift in Chinese domestic demand to battery-grade lithium carbonate from lithium hydroxide has supported prices of carbonate materials, widening the negative spread between the two to a record high Feb. 3, market sources said.

Lithium hydroxide, the downstream product of lithium carbonate, is usually marketed at a higher price.

The negative spread between battery-grade lithium carbonate and hydroxide first began on Dec. 31, 2020 at Yuan 2,000/mt, Platts data showed. The spread flipped on May 25, 2021 with lithium hydroxide assessed at a premium to lithium carbonate. On Sept. 9, 2021, the spread slipped into negative again with lithium carbonate prices above that of lithium hydroxide at Yuan 2,000/mt.

The negative spread has since widened to Yuan 75,000/mt Feb. 3. S&P Global Platts assessed battery-grade lithium carbonate at Yuan 387,000/mt Feb. 3, on a delivered, duty-paid China basis.

Domestic offers for lithium carbonate were heard as high as Yuan 400,000/mt before China's week-long Lunar New Year holidays started on Jan. 31.

Although this inverted trend first started in China's domestic market, it gradually affected international markets as well.

Ex-China prices followed the domestic market and lithium carbonate prices first climbed over lithium hydroxide prices in the CIF North Asia market on Nov. 21, 2021 at a negative spread of $200/mt. It had widened to $6,500/mt Feb. 3.

Platts assessed lithium carbonate at $53,500/mt and lithium hydroxide at $47,000/mt Feb. 3, CIF North Asia basis.

Market sources were of the opinion that the inverted spread will likely remain for the time being due to the stronger demand for lithium carbonate in the spot market.

This was partly driven by the stronger demand for lithium iron phosphate, or LFP, batteries, whose main component is lithium carbonate, as compared with nickel-cobalt-manganese, or NCM, lithium-ion batteries, which utilizes lithium hydroxide.

According to China Automotive Manufacturers Association's data, the NCM ternary batteries output was 11.4GWh, a year-on-year increase of 34.6%, while the LFP battery output was 20.1GWh, a 207.7% year-on-year spike.

However, this trend is only confined to China's domestic market. In Europe, America and North Asia, the bulk of the battery market share is still dominated by NCM batteries.

Regardless, the situation pushed more traders to hold on to their lithium raw materials, while lithium refiners refrained from offering in the market on expectations that prices will continue to climb. With limited domestic offers in the market, spot prices continue to face pressures.

Others are also eager to get into the game, with a couple of traders sourcing for the scarce lithium raw materials.

"We don't have materials. We are looking to buy from overseas lithium converters but haven't found anyone," a Chinese trader said.

"I'm not selling [lithium carbonate] this week although there are still enquiries," another domestic trader said.

The lack of material has also forced some participants out of the market. Smaller refiners who were unable to secure raw material had to halt production, however, larger refiners are restocking aggressively, sources said.

The sharp climb in battery-grade lithium carbonate prices had also pulled industrial-grade lithium carbonate prices higher.

However, processing industrial-grade material into battery-grade remains a challenge. "Sources were unable to book a refinery to process the material into battery-grade," a domestic trader said.

Looking ahead, despite uncertainties in downstream demand given China's power restrictions and pollution curbs in preparation for Winter Olympics 2022, overall lithium prices are expected to remain high for the rest of 2022 on tight supply.