February2024

Lithiumpricevolatility:

wherenextforthemarket?

Afterasuper-chargedrallytwoyearsago,theyear-longslumpinlithium(Li)andwiderbatterymetalspricinghastriggeredarangeofquestionsinthemarket:howsustainablearecurrentspotprices?Haslithium’smarginalcostofproductionbecomemoredynamiccomparedtopreviousyears?Whatnextforlithiumpricesandpricing?

Sofar,lithiumchemicalspotpriceshavefallenby80%fromahistorichighofUS$80/kt(albeitabriefpeak)tocurrentlevelsnearUS$13/kt.Meanwhile,spodumene(SC6

1

)priceshavefallenby90%,withcurrentpricestradingnearUS$800/t–alevelnotseensince2021.

Figure1:Lithiumchemicalspotprices(LHS)andspodumeneconcentrate(RHS),US$/t

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EXWChinaLiOH(Min56.5%Battery) EXWChinaLi2CO3(Min99.5%Battery)Spodumene6%,FOBAustralia(RHS)

Source:BenchmarkMinerals

Note:EXW=ExWorks,LiOH=Battery-gradeLithiumHydroxide,Li2CO3=Battery-gradeLithiumCarbonate

Complexforcescontinuetogovernlithiumprices.Chineseovercapacityincellsandcathodematerialhavedrivenamulti-monthdestockingphaseamplifiedbythecostofholdinginventory.Lithium’ssupply-sidehasbecomemoredynamic,withnewsourcesofswingsupply.GlobalEVsalesmeanwhileremainsensitivetopolicy-thelatteranimportantconsiderationgiventhatthebatteryvaluechainislongand

1Throughbeneficiation,hard-rockore(spodumene)isconvertedtoaconcentrate–SC6referstospodumeneconcentratewith6%lithiumoxidecontent.Theconcentrateisrefinedtoproducebattery-gradelithiumchemicals(e.g.lithiumhydroxide).

EnergyInsight:145

AhmedMehdi,VisitingResearchFellow,OIES

orderbooksarebuiltaheadoftime.Mismatchesinrealandimplieddemandcanleadtoinventorybuildsacrosstheentirechain.

Whiletherehasbeennoshortageofanalysesexaminingthechallengesofscalinglithiumsupplytomeetlong-termnet-zerotargets

2,

lessdiscussedhasbeentheroleofpricinganditsinteractionwithamoredynamiclithiummarket.Afterall,itispricesignalswhichdeterminetheefficientallocationofcapitalinanymarket,particularlyinanimmatureonewhereChinahasanoutsizedrole.

ThisEnergyInsightshedslightonsomekeyfeaturesoflithium’sevolvingpricinglandscape;thedriversofvolatilityinthemarket;andtheimplicationsaheadaslithium’sjourneytomarketmaturitycontinuesapace.

Liandtheenergytransition

Withlithium-ionbattery(LiB)demandlastyearnearing1Twhacrossallkeysegments(EVs,storageandportables),thebatteryvaluechainthisyearenterstheterawattera(see:Figure2).Formarketswithstrongsupplyanddemandprofiles,smallchangesingrowthorinstocking/destockingratescanhaveadisproportionateimpactonbalancesandpricescomparedtomorematuremarketssuchascopperoroil.

Atthesametime,sustainingcapexforstronggrowthmarketsisessential,eveniftemporarysurplusesareanticipated.Asaresult,pricingsignalsarekeytoincentivisecapitalallocationandinvestment.

Giventhis,itisworthasking:isLi’slong-termdemandprofilesecure?Whatarethefundamentaldriversbehindbatterydemandandwhatroledoeslithiumplay?

AsFigure2shows,EVscontinuetodriveoverallbatterydemand,withEVslastyearaccountingforover80%oftotalLiBdemand.Giventhatthebattery(packandcell)makesuparound25-30%ofatotalEVcost,andwiththecathodebeingthemostcostsensitivepartofthebatterycell,cathodecostsremaincentraltoEVeconomics.Inthislight,rawmaterialpricevolatilitycanmakeorbreakbatteryeconomics.

Figure2:GlobalLiBdemandbysector(Gwh)

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0

2015 2016 2017 2018 2019 2020 2021 2022 2023

EV Energystoragesystems(ESS) Portables

Source:BenchmarkMinerals

2

CriticalMineralsReview2023,

InternationalEnergyAgency(IEA)

Today,over85%oflithiumdemandcomesfromthebatterysector,currentlysplitbetween39%lithiumhydroxideand61%lithiumcarbonatedemand

3

-thelatterbeingafunctionofChina’scathodemixanditsoutsizedpositioninthevaluechain.

Whilecathodechemistryshiftshavehadanimpactonthehydroxide-carbonatebalanceinthemarketoverthepastseveralyears,lithium’schemicalintensityhasbeenrelativelystableacrossvariouscathodeformulationsthathaveenteredandareexpectedtoenterthemarket(see:Figure3).Thesamedoesnotholdforcobalt,whichhasseenalengtheninginitssupplybalance,drivenbothbynewsourcesofsupply(Indonesia)andchemistryshiftsinthemarket(e.g.higherlithium-ionphosphate(LFP)adoptionratesonay-o-ybasisinChina,see:Figure4).

Figure3:GlobalCathodedemandforecastbychemistryandLichemicalintensity(RHS)

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LFP LMFP LMO

NCA NCM111 NCM523

NCM622 NCM712 NCM811+

NM/LMNO Na-ion OtherWeightedAv.,Likg/KWh(RHS)

Source:BenchmarkMinerals

Figure4:Chinacathodemixsplitbychemistry(%)

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LFP LMFP LMO NCA NCM111 NCM523NCM622 NCM712 NCM811+ NM/LMNOOther

Source:BenchmarkMinerals,RhoMotion

3BenchmarkMinerals,LiforecastQ423

Whatabouttheroleofcompetingtechnologies?

Since2022,attentionhasfixatedontheroleofsodium-ionbatteries(Na-ion)–seenbyChinesebatterystrategistsasahedgetoLipricevolatility.ItisnocoincidencethatR&DattentiononNa-ionincreaseddramaticallyin2022(followingLi’spricehike),particularlyamongscaledcellplayerswithlargeR&Dbudgets(e.g.CATL).

Na-ion’scompetitivenessderivesfromitsabilitytocompeteoncostanditsthermalstability.Despitethis,Na-ioneconomicsremainsensitivetotheLiprice:thelowertheLiprice,thenarrowerthecostdifferentialtomatureLiBtechnologies(e.g.next-generationLFPbatteries).Otherissuesalsoexist.Na-ion’scathodemarketremainsundeveloped;ontheanodeside,newtechnologiesarerequired.Graphite

whichremainshighlycostcompetitiveintoday’smarketwithamaturevaluechain–doesnotworkforNa-ionbatteries.Instead,undevelopedanodefeedstockssuchashardcarbonsarerequired

4.

Thesesufferfrompoorfirstcycleefficiencyandremainalimitingfactoronenergydensity.WhilethisisnottosaythatNa-ionwillnotplayaroleinthefuture(particularlyinthestoragemarket),itisunlikelytobeseenasamajorthreattoLidemand.

OtherbatterytechnologiessuchasSolid-statebatteries(SSB),whileimportantpost-2030,stillhavechallengestoovercome.Theseincludeanimmaturesupplychain,dendriteformation,andscalechallenges

5.

Andinanycase,SSBincreaseLidemand,giventheuseofaLimetalanode.Whileattemptshavebeenmadetoseetechnologyasasilverbullet,particularlyintheWest,Li’sstructuraldemandwillcontinuetoremainmostsensitivetodevelopmentsintheEVmarket,particularlyaroundthefollowingissues:

InternalCombustionEngine(ICE)–BatteryElectricVehicle(BEV)costdifferentialsandtheabilityofwesternOriginalEquipmentManufacturers(OEMs)totransitionfrompremiummodelstomass-marketmodels.

Theriskofwesternpolicyretrenchmentaroundsubsidies/tradepolicy(e.g.USInflationReductionActdemand-sidepolicies,tariff/subsidypolicyinEUetc)versusChinesescale/overcapacitywhichcontinuestoremainthegeopoliticalmega-trendthisdecade.China’splaybookofoverseasexpansiontooffsetmarginpressureathomewillfurtheramplifywesternanxietiesaroundthecostoflocalisation.

OEMmarginsandshareholderpressure:2023wasareminderofthepressurefacedbyOEMsfromrisingcompetitioninthemarket.Tesla’sweaponisationofitsgrossmarginandfallingresidualvaluesintheEVmarketcompressedmarginsforlegacyOEMs

6.

WhileOEMshavenotabandonedelectrificationtargets,productlaunchdelaysandrisingcosts(e.g.labour)continuetodrivevolatilityarounddemandexpectations.

Whiletheabovecontinuetoremaindynamicdriversofdemand-sidevolatility,lithium’sstoryofseculardemandgrowthcontinuestoremainintact.

Positivefeedbackloopsalsoplayarole.Lowerlithiumpricesfeedintolowercellcosts,increasingaggregatedemand.Asaresult,cyclicalheadwindsmaydrivedemanddeferral,ratherthandemanddestructionwithgovernmentpolicy,furtherbatterytechnologygainsandefficientpricingsignalsbeingkeytrendsgoingforward.

Thelatterisperhapsmostimportantgiventhedynamicshiftsinpricingoverthepastfewyearsandlithium’songoingroadtopricingmaturity.

4Partnershipsarehoweverbeingdevelopedinthemarket,e.g.

Phillips66andFaradionanodematerialpartnership

5ReinforcedbyToyota’spushbackonsolid-statedeliverytimelineoverthepastseveralyears.

Benchmarkestimate2023SSB

productionataround4Gwh

(withcapacitypeggedataround20Gwh).

6Houston(Austin?)-wehaveaproblem!SlowingEVdemandgrowth—ispriceorproducttoblame?,BernsteinResearch,November2023

TheevolutionofLipricing

Unlikeothermarketswheretheroadtopricingmaturitytookmanyyears(e.g.thefinancialisationoftheBrentcomplexinoilmarkets;theevolutionofaliquidLNGspotmarketorthedevelopmentofironorefutures),Li’spricingjourneyhasonlyjustbegun.SeveralimportantfeaturesdistinguishtheLipricinglandscape,keyamongthembeing:

Theroleofproductquality:Li’svaluechainisdeepandincludearangeofproducts(i.e.battery-gradecarbonateandhydroxideaswellastechnical-gradeproductsusedinthelubricants/steel/glassindustry).Lithiumhydroxidehastypicallycommandedapremiumovercarbonateduetothecostofconvertingcarbonate-hydroxide.Spreadsbetweenthetwoproductscanfluctuate,dependingondynamicsinthecathodemarket.Forinstance,higherLFPpenetrationratesinChinahavenarrowedthespreadbetweenthetwoinrecentyears.Productqualityalsohasanimpactontradeabilityandsuitabilityforasuccessfulterminalmarketmechanism.Despitediscussionsaroundstoragemechanismsorstrategicstockpiling

7

,hydroxidehasalimitedshelf-lifeandunlikeoilorLNG,battery-gradeproductsarehighlyspecialised,makingphysicaldeliveryuponcontractexpiryachallenge.Forinstance,participantsmaynotreceivematerialthatmeetstheircathodespecificationorqualificationrequirements.WhileChinaestablishedaphysicallybackedcarbonatecontract(GuangzhouFuturesExchange)inJulylastyear,multiplechallengesaroundqualityandwarehousinghavealreadytakenroot

8.

Contractvspotpricing:historically,volumesintheLimarketweredominatedbylong-termcontractswithfixed-pricecomponents(i.e.bilateraldealssettodefinepricinglevel),largelyinsulatingplayersfromspotvolatility.Thisreflectedtheimmaturityoftheindustry.Fixedpricedealsguaranteedstablecashflowsandwasameanstosecuringfinancing,particularlyforjuniorminers.Adjustmentstothecontractprice(otherwiseknownasQuotationPeriods,QPs)typicallytookplaceonaquarterlyorsemi-annualbasis.Insomecases,QPscouldbeevenlonger.Inthissense,theaveragesellingprice(ASP)ofsomeplayersduringthisperiod(2015-

21)couldbequitestickyandlagdevelopmentsinthespotmarket.Typically,thecontractpricereferencehasbeenbasedondealsreportedintheSouthKoreanandJapanesemarkets–buyersofseabornelithium(otherwiseknownastheLicarbonateCIFAsiaprice)–uponwhichEUandNorthAmericanCIFswappriceslargelytrack.ThespotpricemeanwhilehastypicallybeendeterminedbytransactionsinChina,largelyafunctionofitsoutsizedroleinthevaluechain.Chinarepresentsaround~80%ofglobalcathodecapacity,wherecontractsaremuchshorter,allowingforgreaterspotliquidityandprocurementchannels.Giventhisliquidityconcentration,ChinesebuyingofLi(aboveandbeyondcontractedvolumes)hasbeenseenastheindustrybellwetherforspotpricing.

Theemergenceofdynamicpricing:thesurgeintheLispotpricein2022howeverledtoashiftinmechanisms.SpreadsbetweentheAsiaCIF-ChinaEXWpriceblewout(see:Figure5)andattentionfocusedonhowASPscouldcaptureLi’sstatusasaseller’smarket,withpricesbeingmoremarket-led.Forestablishedplayerswithacompetitivepositioninthecostcurve,dynamicpricingalsomadesenseasitallowedforgreaterupsideimprovingvaluationsanddividendstreamsandanabilitytowithstanddownsidepressures.Asaresult,QPswereshortenedfromquarterlytomonthlyandthecontractpricemovedfromafixedtovariablebasiswithagreatershareofcontractsmovingtoindexed-linkedpricing,assessedbyPriceReportingAgencies(PRAs).Thedevelopmentofmorefrequentreportingofspotpricesfromfortnightlytoweeklytoreflectgreaterspotvolumesalsohelpedwiththistrend.

7ItremainsunclearwhattheIEA,forexample,meansby

“strategicstockpiling’

andatwhichpointinthevaluechain

8

Chinaexchangeaddslithiumwarehousestoallayfearsofshortsqueeze,

M,Dec2023

Figure5:Licarbonatecontractvspotandspreads(RHS),US$/t

Figure6:Albermarlesalesbycontracttype(2022v2023)

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Spot-contractspread(RHS)LicarbonateCIFAsia

LicarbonateEXWChina

Source:Benchmark,Albermarle

2022 2023

Fixed Variable Spot

Roleoffloorandceilingprices:WhileLipricingsince2022hasbecomemoredynamicinthechemicalsmarket,severalfactorspreventafullexposuretospotvolatility,namely:

pricefloors:thesecometotherescueofplayersduringspotmeltdowns.Pricefloorsvaryacrosstheindustrybutaretypicallybasedonanunderstandingoflong-runmarginalcosts/incentiveprices.WhilesomeplayersmayhavefloorsintherangeofUS$12-16/kt,newprojectdevelopers–particularlythoseinNorthAmerica–wouldneedfloorsinthelow-mid20stobefeasiblegivenhighercapitalcosts.

priceceilings:thesearegovernedbybilateralnegotiationsbetweenbuyerandsellerwhichalsoincludediscountsandotherfactorstodampenvolatilityrisks.

Inmanyways,thelithiummarket’smovetodynamicpricingcontinuestoevolveandisthefirstchapterintheindustry’sroadtomarketmaturity.However,ithasalsoexposedthevaluechaintogreaterspotvolatilitycreatingadynamictensionwitheffortstobuildoutthevaluechainoutsideChina,impactingNetPresentValue(NPV)sensitivityforgreenfieldprojectsandthehurdleratefornewentrants.

SC6pricing:thesearchfortheoptimalcontinues…

Li’spricingjourneydoesnotendwithshiftsinchemicalpricing.AsaprimaryfeedstockforLirefiners,spodumeneconcentrate(SC6)pricinghasadirectimpactonLirefinerprofitabilityandmargins.ThisisfurtherreinforcedbytheindustrystructureoftheLivaluechain–splitbetweenintegratedandnon-integratedrefiners.ThelattertypicallysitatthetopendoftheLicostcurve,giventheirlackofintegratedfeedstockandsensitivitytorawmaterialpricevolatility.Thisissimilarinmanywaystotheoilrefiningcostcurve,exceptwithouttheabilitytohedgecracksorpricingdifferentials.

WhiletheLichemicalsmarkethascoalescedonaclearpathtovariablepricing;theSC6pricinglandscaperemainsmorefragmented.Currently,severalpricingmechanismsexistintheSC6market,namely:

Formula-basedpricing:SC6hasbeenpricedasaformulalinkedtothepriceofchemicalstiedtoindexesforLicarbonate/hydroxidewherethereisgreaterliquidity,insomewayssimilartothepayablesmethodusedincobalthydroxidepricing

9.

Whileformulasvaryinthemarket,atypicalmodelwouldlooklikethefollowing:

SC6formulaprice=(prevailingchemicalprice–conversioncost/processingfee+margin)÷recoveryrate(i.e.numberoftonnesofSC6required)–freight(Aus-China)

ThechemicalpricequotationistypicallytakenfromabasketofPRAs,witharangeofquotationperiodsusedinthemarket.

Otherformulasalsoexistinthemarket,includingformulaswhichuseafloorpricefortheminerandshareoftheconverter’smargin:

SC6Price=Cashcostofproduction+(Prevailingchemicalref.price÷Conversionfactor-FloorSC6Price)*SCProducerMarginShare.

Fixedpricebilateralnegotiations

LinktoindependentSC6priceindices(e.g.BenchmarkMinerals)

Spotsalesandauctions:amodelpioneeredbyPilbaraMinerals’platformauctionsandusedthroughout2022.AuctionsforSC6materialcancreatecompetitionforthemarginaltonneandproveausefultoolforpricediscovery.However,themechanismislargelylimitedbythevolumeofspotmaterialandfrequency.

WhilealltheabovehavebeenactivecomponentsintheSC6pricingecosystem,formula-basedpricinghaslargelyledtheway.

Withinthoseformulashowever,shiftsaretakingplace,particularlyaroundtheQPsusedforchemicalprices.Whilealargepercentageofformula-basedpricingcontinuestoreferenceanaverageofthechemicalpricefromthepreviousmonth(M-1basis),changehasbeenafootinthemarket.

Thevolatilitywitnessedin2023hasledChineseconverterstopushforchangesintheQPbasis,movingfromM-1toM+1/M+2basis–meaningthataconverterwouldhavegreaterabilitytomanagecashflowexposureduringdowncyclesasthechemicalpricealignsmorecloselywithSC6priceupondelivery.

Sofar,onlyafewplayershaveshiftedtotheM+1QPmethod,butitdoessignalthepotentialforamoredynamiccostcurveandsourceofpricingtensionbetweenChineseconvertersandnon-integratedSC6producers.Ontheonehand,someplayerswhohavemovedtoM+1QPpricingcanbenefitmoregreatlywhenpricesarerisingbutalsoincreasetheirexposureduringdownturnswiththecashcostofproductionbeingakeysourceofdefence.Atthesametime,afragmentedpricinglandscapewith

9Changealsoappearstobeafootinthecobaltmarketswithgrowingfocusonmovingawayfromlinkingcobaltbatterychemicalpricingfrommetalpricing.

differentQPtenorscouldcreategreaterpricingriskandroomfordispute,especiallygiventhelackofhedgingtools.

Asaresult,theSC6pricinglandscapecontinuestoremaininflux,withthesearchforoptimalpricinganongoingtrend.Thepotentialforanindependentspotpricemaybethenextchapterfortheindustry,giventhelargevolumeofspodumeneexpectedtoenterthemarketoverthenextdecade.

HowSC6pricingevolvesisnotpurelytheoretical.Giventhetop-endofrefiningcostcurvebeingdeterminedbynon-integratedproducers,SC6feedstockpricingcanmakeorbreakconvertermargins

whichhasconsequencesforallplayersinthelithiumvaluechain.

Lithiumpricecycles

TheLimarkethasbeenthroughvariouscyclesoverthepastseveralyears,keyamongthembeing:

Spotpricecollapseof2019-20:ThiswasafunctionofexcessspodumenesupplyfromWesternAustraliathatsawSC6pricesfallbelowUS$400/t.Theexcesssupplyinthemarketdroveaseriesofhigh-profileclosures

10

andrepresentedthefirstwaveofrestructuringintheLivaluechain.

Covidrecoveryandgovernmentstimuluscycle:whileheadlinesinrecentmonthshavefixatedonlithium’sspotcollapse

11,

thequestionshouldnotbewhypricesfellby80%butwhypricesincreasedtohighlevelsin2022(particularlyend-22peakofUS$80/kt,multiplesabovethecostofthemarginaltonne).Clearly,thecovid-ledstimuluspackagesofgovernments,pent-updemandstretchingorderbooks(shownbydelays)andanelementofirrationalexuberanceinbuyingpatternshadarole.Companiesacrossthevaluechainalsobuilt-upinventorytoprotectthemselvesagainstfurtherpriceincreases–animportantconsiderationgiventhelackofhedgingtoolstomanageinventory.

Jan2023-present:thepricecollapsewitnessedin2023cannotbepinnedonasinglefactorbutarangeofdrivers,themostimportantbeing:

Chineseovercapacity:Evenaccountingforhigherexportsin2023onay-o-ybasis,cellinventorybuildswereakeyfeatureofChinesebalanceslastyear.Thesamealsoheldforcathodeinventorywhichlimitedpressuretopurchaseadditionalmaterialonthespotmarket.Inmanyways,earlyindicationswereapparentatthestartof2023whenCATL–theworld’slargestcellproducer–beganofferinglowerpricesforitscellsinexchangeforfixedordersfromOEMcustomers.CATL’scelldiscounts,basedonadiscountedLicarbonatepriceequivalenttocashcostsofitsintegratedsupply,reinforcedthecompany’swillingnesstouseitsscaletosecuremarketshare,particularlyacutegiventhewithdrawalofEVsubsidiesbyChineseauthoritiesattheendof2022.TheepisodehighlightedakeytrendwhichcametodefineChina’smarketin2023:dog-eat-dogcompetitionintheChinesevaluechain,wheremargincompressionwasacuteandoverseasexpansionapriorityfortier-1players.

Chinesemacropolicy:Inabidtoavoidcounter-cyclicaldebtfinancingtooffsetchallengesinthepropertysector(amplifyinglong-termimbalances),Chinaaccelerateditspivottothe“ThreeNewIndustries”-solar,EVs,andbatterymanufacturing-inabidtomeetannualGDPtargets

12.

OneestimatesuggestedthatChinainvestedalmostUS$900bninthecleanenergyindustryin2023,a40%y-o-yincrease

13.

TheimpacthasnotonlybeenfeltinChina’sbatteryindustrybutit’ssolarindustrytoo–wherewaferpricesarecurrentlytradingattheirlowestpricesever.In

10E.g.2019forcedadministrationofAlitaResources

11

LithiumpriceplungesonslowingChinesedemandforelectricvehicles,

FinancialTimes,January2024

12

ChinaGoesAllInonGreenIndustrytoJoltAilingEconomy,

WallStreetJournal,Jan2024

13ManythankstoJoelCouse,SpecialAdvisorattheIEAforpointingmetothis:

CleanenergywastopdriverofChina’s

economicgrowthin2023,

CarbonBrief,January2024

thissense,China’sstrategicdefenceofitspositioninthelithiumvaluechainisnowtiedupwithitsbroadermacropivo

t14.

EVmarketdynamicsex-China:Tesla’sweaponisationofitsgrossmarginparticularlyviaEVdiscountsforModel3/Yin2023hadarippleeffect.LegacyOEMsfacedmarginpressurefromincreasedcompetitionandEVresidualvalueswerenegativelyimpactedparticularlygiventhelarge%oftheUSmarketwhichcontinuestobuyEVsonaleasedbasis,alsonothelpedbyhighinterestrates

15

.OthercyclicalheadwindsforOEMsincluded:risinglabourcosts,EVsubsidywithdrawals(e.g.Germany)andthedelayedimpactofcreditsallocatedundertheInflationReductionAct.Nevertheless,despiteEVinventorybuilds,overallEVsales(BEV+PHEV)didregister38%growthin2023–withthebiggestsurpriseshavingbeenhybridsales.

Figure7:ChinaBEVmonthlysales(LHS)andBEV/PHEVpenetrationrates(RHS)

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BEVpenetrationrate(RHS) PHEVpenetrationrate(RHS)BEVmonthlysales(*000units)

Source:ChinaPassengerCarAssociation(CCPA)

Note:BEV=BatteryElectricVehicle;PHEV=Plug-inhybridElectricVehicle

AmoredynamicLisupply-sideequation:explorationbudgetsin2022-23increasedbyaround20%particularlyforhard-rockplays.Keysupply-sidetrendsin2023includedChina’sfocusonsecuringnewsourcesofcostcompetitivefeedstock

16,

primarilyAfrica(Zimbabwe)andwithinChinaitself(highercostlepidolite),thelatteranchoringitselfasakeysourceofswingsupplyinthemarket.Thisdynamicisnottrivialbutalsodeeplystrategic,giventherealityofwesterngoalsinseekingtointegratemoresourcesofAustralianspodumeneintotheirvaluechainsandAustraliawantingtogofurtherdownstream.China’slithiumplaybookin2023demonstratedanabilitytoidentifynewsourcesoffeedstockforconversionanddeepenthegoalofvaluechainintegration.

14Historically,China’sdisinflationaryimpactwasoffsetbytheinflationaryimpactofitsstatusasamajorcommodityconsumer:

AGlobalDisinflationaryForcereturns,

GavekalResearch,February2024

15Houston(Austin?)-wehaveaproblem!SlowingEVdemandgrowth—ispriceorproducttoblame?,BernsteinResearch,November2023

16WithsomeChinese-backedintegratedprojectsinAfricabeinghighlycostcompetitive(rangeofUS$7-12/kt).

Figure8:ZimbabweSC6exportstoChina(KtLCE)

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Source:Customsdata

WherenextforLithiumPrices?

Withcurrentspotpricesalreadydeepintothecostcurve(see:Figure9and10)andexpectationsofChinesespotbuyingexpectedtopickupinH224(asrestockingpickspace),spotpricesarelikelytocorrectlaterthisyear.

Figure9:2024Spodumenecostcurvevspotprice Figure10:2024LiChemicalscostcurvevspotprice

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0.0% 20.0%40.0%60.0%80.0%100.0%

%totalproduction

Source:BenchmarkMinerals

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0.0% 20.0%40.0%60.0%80.0%100.0%

%totalproduction

Supplycurtailmentshavealreadytakenrootinrecentweeks(see:Table1),withfurthercurtailmentsandcost-cutting

17

expected,particularlyforhighercostAustralianprojectswhichwouldratherpushprojectsintocareandmaintenancethanbeloss-making.

17ALB’s2024capexguidancerevised