PRICING NOTICE: Conclusion of Fastmarkets’ consultation on daily seaborne Asia lithium pricing

From Wednesday December 1, Fastmarkets will publish its seaborne Asia battery-grade lithium carbonate and hydroxide assessments on a daily basis.

Fastmarkets had proposed in July to increase the pricing frequency for the two battery-grade lithium prices - assessed on a cif China, Japan and South Korea basis - to daily from weekly.
This proposal had originally stated that the consultation period for the proposed lithium price amendments was to end on October 26 and, subject to feedback, changes were to take place on November 1.
But Fastmarkets received feedback to support delaying the implementation of changes to December 1 - to provide some time between the announcement and any changes taking place.
The following is a summary of the feedback received from both a preliminary and the official three-month consultation, and details on how that feedback and internal data analysis informed the conclusion to increase the pricing frequency of Fastmarkets’ seaborne Asia battery-grade lithium carbonate and hydroxide assessment.
Feedback was received from direct stakeholders in the lithium supply chain, including producers of lithium salts, and consumers that included cathode materials producers and battery manufacturers, together with traders and distributors of lithium compounds. Some responses also came from indirect stakeholders, including those from the spodumene concentrate segment of the market.

The responses showed that there is a slight preference for daily battery-grade seaborne Asia lithium prices as opposed to weekly.
Some feedback was in the form of a straightforward agreement or disagreement, but there were also responses that noted both the advantages and disadvantages of daily prices, albeit still indicating their preference for either the proposed changes or the status quo of maintaining the weekly pricing frequency. Some took a neutral/indifferent position.

The decision to move to daily prices is not only based on the absolute number of positive and negative responses, but also made after analyzing the benefits and drawbacks raised by market participants and whether those would have a material impact on the assessments.
 

The following are among the arguments that Fastmarkets considered in arriving at the decision to move to daily pricing:
Arguments in favor of daily pricing
Adds market transparency, aids business strategy (material)
Since daily pricing provides the promptest response to market movements, transparency is therefore maximized. The additional transparency achieved is beneficial for stakeholders in the lithium supply chain to get a clearer picture of the market before they roll out any purchasing or sales strategies.
“Looking at the iron ore price evolution, it is a trend to have a daily price for lithium,” a lithium producer source said, adding that daily price discovery could provide market participants with additional convenience to capture the price trend.
There are a number of factors for price reporting agencies such as Fastmarkets to consider in terms of increasing the pricing frequency of an assessment. These factors include spot liquidity, demand in the physical market for transparency, and the amount of data that can be collected each pricing session. But adding to market transparency is an essential factor to consider in the conclusion of the consultation.
More responsive to market movements (material)
Daily pricing leads to a quicker and more accurate reflection of market movements. As one battery manufacturer source noted, daily assessments show the direction of price movements in the timeliest manner, offering market participants the most up-to-date picture of the market.
Arguments opposed to daily pricing
Insufficient liquidity (material)
While a majority of feedback noted the benefits that more frequent pricing could contribute to a transparent lithium market, low liquidity has been cited the primary drawback. Consumers in seaborne Asia lithium market usually purchase exported units through long-term contracts, which limits their exposure to the spot market.
However, per Fastmarkets’ price assessment methodology principles, whereas greater weighting is given to actual transactions, other data is also used for reporters to judge the prevailing tradeable level of an open and competitive market, either as additional validation for transactions or in the absence of actual deals in the spot market.
This data includes bids and offers in tight spread, which are second behind transactions in the order of significance, followed by deals indirectly reported to Fastmarkets (referred to as deals heard), and lastly, data sources’ own estimates of the market when they have no business to report.
With the lithium market rapidly evolving, market participants expect spot liquidity to continue to improve and new supply to come into the market.
In addition, some market participants noted the inability of some consumers in East Asia to secure enough units in long-term contracts with their legacy suppliers, which will inevitably result in them turning to the spot market for additional supply.
 

Speculation
Some respondents have raised concerns over the impact that the frequency of pricing has on speculation within the markets. Fastmarkets’ view is that increased market transparency reduces the impact of speculation in markets. More frequent pricing means that market participants are better informed and therefore speculative activity is more likely to remain excluded through the application of the Fastmarkets methodology.
Willingness to contribute data on daily basis
Concerns were also raised over the willingness of market participants to contribute data or speak to price reporters on a daily basis. Fastmarkets has reviewed the number of companies that submit data and since 2018, their numbers have continued to grow. Fastmarkets remains confident that its methodology allows it to publish robust and representative price assessments on a daily basis.


Meanwhile, Fastmarkets is keen to discuss the practicality of automated data submission, back-office data submission or signing data submitter agreements to ease the process of providing data for our price assessments. A few market participants have expressed interest or willingness to submit data via more automated methods, and speak to Fastmarkets reporters from time to time, albeit not daily, to exchange information.
Following the conclusion of this consultation, Fastmarkets will launch the daily battery-grade seaborne Asia lithium prices on December 1, together with other amendments on the price names and specifications proposed in the initial pricing notice in terms of the chemical abbreviation for the lithium purity for lithium hydroxide units.
To provide feedback on the conclusion of this consultation for Fastmarkets’ lithium price assessments, or if you would like to provide price information by becoming a data submitter to these prices, please contact Dalila Ouerghi and Susan Zou by email at: pricing@fastmarkets.com. Please add the subject heading “FAO: Dalila Ouerghi/Susan Zou re: lithium price assessments.”
To see all of Fastmarkets’ pricing methodology and specification documents, go to https://www.fastmarkets.com/about-us/methodology.

Susan Zou

susan.zou@metalbulletinasia.com

Published

Susan Zou

October 27, 2021

11:55 GMT

Shanghai