Lithium, a key component in electric vehicle batteries, has seen a dramatic reversal in fortunes this year. Chinese spot lithium carbonate prices rose tenfold over the past two years, only to slump by 70% between November and April. This was due to a temporary demand hit in China’s EV market, the world’s largest, which caused a collective destocking cycle and killed the spot market. Prices for lithium carbonate outside of China have fallen this year, but not to the same degree, while hydroxide prices have been even more resilient.
The Chinese spot lithium carbonate market is a small and volatile component of the global lithium pricing structure, and price signals can be extreme relative to what is happening elsewhere in the supply chain. The big volumes traded directly between lithium producers and consumers are based on longer-term contracts, often with fixed-price components, insulating them from spot market volatility.
The Chinese spot price is already bouncing back hard, and the Wuxi futures exchange is playing an important role in the fast-growing industry’s price discovery process. The lithium industry has resisted any move towards futures trading on the basis that the product is not a commodity, but a successful Western futures reference price would act as an important counter-balance to the Wuxi price.
The lithium market is now on the rebound, led once again by the Chinese spot price. China’s EV market is regaining lost momentum and the domestic destocking cycle is coming to an end. It may be time for the industry to accept more price transparency, rather than have a small group of traders shove the global supply chain around.