Commodities Corner: Venture a Highway

LIT is a Wall Street-listed ETF focused on lithium – producers like Albemarle, battery makers and car companies like BYD, Ganfeng, Tianqi and CATL – and it is starting to cause concern.

It’s used by investors, speculators, end users and producers alike in hedging their positions in the key battery metal and taking a punt on future demand.

Right now, it’s starting to send some worrying signals for the industry, especially Australian lithium companies and investors.

(There’s no direct involvement in LIT by Australian companies in the sector – its indirect through Albemarle, Tianqi and Ganfeng, all of whom have investments or joint ventures with locals like IGO, Mineral Resources, Core Lithium and Pilbara Minerals.)

While LIT is still up more than 13% year to date in 2023, that’s only half the 25% gain that existed up until the February 1.

Since then, the price of LIT has fallen with much of the slide happening late last week when there was a drop on Thursday of nearly 6% and almost 4% on Friday.

That was despite the record earnings reported by US companies, Livent and Albemarle last week.

It was the third weekly loss in row and the driver has been weakening Chinese lithium carbonate prices.

Lithium carbonate prices have been falling since the end of last year, and there are still no signs of the decline ending.

Last week, Chinese resource websites reported that Ouyang Minggao, a member of the Chinese Academy of Sciences, forecast that the price of lithium carbonate in China would fall to roughly 350,000 yuan ($US50,890) to 400,000 yuan per tonne in the second half of this year.

Ouyang made the comments at an electric vehicle industry conference last week and the forecast implies that lithium carbonate prices will have room to fall by as much as 20% this year.

Battery-grade lithium carbonate prices in China fell last week to an average price of RMB 448,000 per tonne ($US64,280), according to the My Steel website. Industrial-grade lithium carbonate fell to an average price of RMB 416,000 per tonne.

Lithium hydroxide prices fell to the closing range of RMB450,000-470,000, according to MySteel and have been tracking carbonate prices lower as well for the past month or more

The reason behind this is lower growth rates in the new energy vehicle (NEV) industry (because of the ending of most purchase subsidies) and lower demand for power batteries in lower-capacity models such as plug-in hybrids which have been overtaken by sales of B-EVs.

In November last year, the price of battery-grade lithium carbonate in China briefly topped RMB 600,000 per tonne (more than $US87,000 per tonne). This was about 14 times the average price of about RMB 41,000 per tonne in June 2020 and increased by about 55% from RMB 364,000 per ton in February of last year, according to MySteel data.

In an analysts note around Last November, Morgan Stanley saw the potential for a material correction in lithium prices in this year as weakening demand saw supplies catch up to falling demand.

Morgan Stanley expected lithium carbonate prices in China to be at $US67,500 per tonne in the first half of 2023, falling to $US47,500 per tonne in the second half of this year, a fall of about 35%. They are currently under the $US67,500 forecast for the first half of this year and steel weakening.


And while the fall in the value of the LIT ETF and forecasts for lower prices might normally hit valuations across the sector, a Bloomberg report at the weekend could reverse that.

Bloomberg claimed that Elon Musk’s Tesla has been weighing a takeover of Canadian battery-metals miner Sigma Lithium Corp, which was worth $C4.2 billion at Friday’s close. Sigma shares, however, jumped 25% in afterhours trading. The Presidents’ Day holiday in the US will see investors’ focus turn to Canadian markets.

Sigma Lithium is one of multiple mining options the electric-vehicle maker is exploring as it mulls its own refining, Bloomberg reported but Sigma Lithium’s biggest shareholder has reportedly been exploring a potential sale of the company and gauging interest from miners and carmakers.

 A10 Investimentos, a Brazilian private equity fund, owns 46% of Sigma.

The company is developing a large lithium rock deposit in Brazil known as Grota do Cirilo.

Sigma said in December that it’s considering nearly tripling lithium production at the project in 2024 after survey revealed mineral reserves 63% higher than previously thought.

Prices of Australian lithium groups will no doubt respond positively to the Bloomberg report and switch attention away from the weakening prices in China.


In other commodity markets Brent crude futures settled down $US2.14 or 2.5%, to $US83.00 a barrel, falling 3.9% week on week. West Texas Intermediate (WTI) US crude settled down $US2.15, or 2.7%, to $US76.34, falling 4.2% from last Friday’s settlement.

LNG prices in northern Asia (the so-called JKM price) is now around $US16 per million British Thermal units, while the European price has fallen below 50 euros per megawatt hour.

Benchmark wholesale gas prices fell almost 5% Friday to hit €49 ($US52) per megawatt hour, their lowest level since September 2021 and a fraction of the all-time high of €320 reported last August, according to data from Independent Commodity Intelligence Service.

The way the JKM price has fallen in tandem with the Eurozone prices suggests that all those claims are wrong that energy prices would soar after the re-opening of the Chinese economy from the tough Covid lockdown restrictions.

LNG, oil and thermal coal prices have all weakened in the past month since the re-opening news became the driving story for commodity markets.

Comex gold ended at $US1,850.20 an ounce in New York on Friday – that was down 0.1% and 1.3% for the week. That was the third losing week in a row for the precious metal.

Comex copper rose though – up 2.1% to $US4.11 a pound.

Iron ore edged higher in Singapore to end at $US125.70 a tonne for 62% Fe fines. That was up from $US124.72 the previous Friday.

Premium Australian coking coal rose again – hitting $US389.50 a tonne in Singapore up $US20 a tonne over the week.

But Newcastle thermal coal saw another big fall – down 7.4% for the March contract in the past week at $US183.50.

The February contract fell more than 11% over last week to end at $US209.35. The front month price has more than halved since last November.