Critical minerals players seek better price discovery to curb volatility

Australian hard-rock lithium producers are looking for ways to increase price transparency after getting rocked by volatility over the past two years.

Despite booming demand from the energy transition, many critical minerals are still traded in relatively small volumes, often with specifications unique to each end user and with little or no standardization across immature markets, according to an Oct. 16 report from research group State of Play.

The report found 55% of respondents see "very low to low levels of price transparency in critical minerals markets," according to 60 individual surveys of miners, manufacturers, suppliers, governments, investors, researchers and traders. They said spodumene, rare earths, mineral sands and graphite products were the most opaque markets.

While there is greater understanding of spot pricing in lithium markets, which have more advanced supply chains, "the big swings in price volatility like lithium has experienced this year need to be taken out of critical minerals markets," said Peter Kelly, CEO and co-founder of Minerallink Pty. Ltd., which sponsored the survey.

Platts assessed 6% lithium spodumene FOB Australia at $2,050 per metric ton on Oct. 20, down 65.8% from Jan. 6, and down 75% from a record high of $8,200/t set on Nov. 18, 2022.

Platts, part of S&P Global Commodity Insights, publishes daily spot price assessments for lithium carbonate and hydroxide in Asia and Europe and a weekly lithium spodumene assessment basis FOB Australia.

More spot market visibility

Miners have the greatest role in driving price transparency, along with processors, chemical and battery manufacturers, according to State of Play. But part of the problem is that access to market information is limited as it is "buried in long-term, opaque commercial agreements and offtake contracts between buyers and sellers," the report said.

Liontown Resources Ltd. is calling on fellow miners to reserve more of their supply for spot sales to bring greater insight into current prices, Chief Commercial Officer Grant Donald told S&P Global Commodity Insights.

Albemarle Corp. had its own downstream pathway for Liontown's West Australian Kathleen Valley spodumene. But after withdrawing its A$6.6 billion takeover bid for Liontown, the latter is now "back to Plan A," which includes holding a percentage of production uncontracted to sell into the spot market and help create a spodumene index, the executive said.

"We will still have volume which we've kept back deliberately for spot to try increase liquidity and provide some transparency on pricing. We'd like to see others doing likewise ... to be a bit more facilitative of spot transactions as an industry," Donald told Commodity Insights.

Need for centralized market

In 2021, Pilbara Minerals Ltd. launched the Battery Material Exchange (BMX), a trading platform for spodumene concentrate produced from its West Australian Pilgangoora project. BMX helped determine "the true underlying value of the lithium product in the market at that time," CEO Dale Henderson said in an email interview.

However, a single-seller auction system only gains price discovery for that company, not the broader market, said Kelly, whose company, Minerallink, has developed a commodity-agnostic online marketplace set to start spodumene trades in November.

"A centralized market for battery materials trading would better enable price discovery and by extension a more efficient market for buyer-seller response," Henderson said.

State of Play recommended a digital commercial communications platform with digital contracts, general terms and conditions, and customers and buyer verification built in. The platform could be a "stepping stone for the evolution of futures/derivatives markets," the report said.

Donald said that while there is no futures market for spodumene, there is "an emerging one for [lithium] carbonate and hydroxide, which can help form some kind of data point." The problem is, "it's like iron ore pricing based on steel. You potentially don't get the full value for your product because the spodumene market could be tighter than the wider carbonate or hydroxide price given that you can use brines for both products."

"An exchange that can achieve enough liquidity to provide accurate and trusted benchmarks will go a long way in closing the knowledge gap in the critical minerals industry," State of Play's report said. "The development of a centralized spot market may incentivize greater volumes of trade outside of long-term contracts and reduce the industry's reliance on offtake agreements."

Platts 6% lithium spodumene FOB Australia assessment is an offering of S&P Global Commodity Insights. S&P Global Commodity Insights is a division of S&P Global Inc.

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