Lithium producer Albemarle said part of its customer base is "pressing for more visibility" on pricing and is looking to move away from fixed long-term contract pricing.
"Auto original equipment manufacturers (OEMs) are pressing for more visibility on a price that fluctuates with the market, insisting that battery producers pass through material costs versus engaging in fixed long-term contract pricing with lithium suppliers," Albemarle said at an investors day presentation.
Historically, the lithium market was dominated by one- or multi-year supply contracts.
But battery producers and auto OEMs are now more receptive to using other pricing mechanisms, which give consumers access to tools that track movements in spot market and manage the risk related with raw material price fluctuations.
Hedging against futures contracts is one such method. The London Metal Exchange partnered with Fastmarkets this year to develop a globally accepted lithium price
to underpin a futures contract.
Albemarle, which produces lithium in Chile and Australia,also noted its customer base has shifted from cathode producersto battery manufacturers and auto OEMs.
2025 tipping point
The fundamental lithium market will tighten to an undersupply situation despite lithium chemical output for usein batteries growing by three and a half times in the next five years, Albemarle forecast.
The compound annual growth rate for demand is anticipated to be 20% while global battery-grade lithium chemical demand moves to 900,000 tonnes by 2025.
Since 2017, supply has become more abundant due to "Australian spodumene mines [starting] up more quickly, and China conversion capacity using Australian spodumene as a feedstock came to market faster and have met specifications sooner than projected," the company said.
With a forecast growth in demand, Fastmarkets' Battery Materials research team anticipates the lithium market to return to a balance by the middle of next year and support a recovery in prices.
Fastmarkets' lithium carbonate 99.5% Li2CO3 min, battery grade, spot price cif China, Japan & Korea
stood at $8.50-10 per kg on December 12. This is a fall of 48% from $18.50-20 per kg two years ago when supply started to ramp up.
Albemarle's 'base case’ forecast is a demand split of 60/40 in the favor of larger quantities required of lithium hydroxide (LiOH) over lithium carbonate(Li2CO3).
Albemarle's prediction is that global production will increase to 410,000 tonnes per year of Li2CO3 by 2025 from 195,000 tpy in 2019.
This growth will be outstripped by LiOH output which will move to 525,000 tpy from 70,000 tpy over the same comparison period.
These figures translate to demand more than doubling forcarbonate and growing seven and half times for hydroxide, andoverall lithium chemical demand growing by tree and a halftimes.
The company will operate a "disciplined and measured" plan to expand conversion capacity by only producing around 60% of its available resources by 2024, it said.
By 2024, nameplate capacities will equate to 150,000 tpy of Li2CO3 and 210,000 tpy of LiOH across its production locations.
Of hydroxide supply, 60,000 tpy would belong to Australian miner Mineral Resources through an existing joint venture at the Wodgina spodumene mine in Western Australia.