(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Andy Home

LONDON, March 19 (Reuters) - Albemarle, the

world's largest producer of lithium, has announced it will

conduct a series of auctions for its products on the Metalshub

digital trading platform.

The first "bidding event" will be for 10,000 metric tons of

spodumene ore and is scheduled for March 26.

The aim, according to Albemarle's notice to customers, is to

"explore price discovery while ensuring a fair and transparent

process for all customers".

The key word in that sentence is "transparent". The entire

lithium supply chain has been rocked by the collapse in prices

over the last year.

But just how reliable an indicator are those prices?

Albemarle's decision to conduct a series of online auctions

suggests it thinks the lithium industry could do better.

FRACTURED PRICING

The explosive growth of the electric vehicle battery market

has transformed lithium from a specialty niche product to

mainstream industrial material in the space of just 10 years or

so.

Lithium pricing hasn't yet evolved to match the scale of

that transformation.

Albemarle, like most established producers, has historically

sold most of its lithium on fixed-term contracts directly

negotiated with buyers.

That, however, only partly insulates it from the volatile

spot price, which is primarily determined in China, the world's

largest converter of lithium raw materials into battery-grade

material.

China's first futures price came in the form of the Wuxi

Stainless Steel Exchange, which launched a lithium carbonate

contract in July 2021.

Wuxi immediately had an outsize influence on global pricing,

although it was a problematic benchmark, based on spot physical

trading of non-battery grade carbonate among a limited number of

Chinese players. The relationship between Wuxi futures pricing

and lithium reality was at best unclear.

Wuxi's influence on Chinese and international prices has

waned after the July 2023 launch of a lithium carbonate contract

by the Guangzhou Futures Exchange (GFEX).

GFEX, though, has turned out to be just as wild a price

indicator as Wuxi. A wave of speculative enthusiasm saw volumes

on the new contract almost double between October and November

with the exchange forced to hike margins and expand trading

limits to cope with the volatility.

That hasn't stopped GFEX from rapidly becoming the accepted

reference point for lithium pricing, even though non-Chinese

entities will struggle to access it.

Western companies looking for price management tools are

currently limited to the CME's lithium hydroxide contract, which

has built up impressive momentum but remains small relative to

its Chinese peer. CME open interest at the end of February was

22,275 metric tons, compared with 321,329 on the GFEX.

The London Metal Exchange's lithium contract has failed to

trade at all, while that listed with the Singapore Exchange

traded just 18 lots last year and has notched up volumes of only

30 lots so far this year.

All Western futures contracts are settled against price

assessments from Fastmarkets, which like fellow price reporting

agency Benchmark Mineral Intelligence publishes an array of

assessments intended to capture the complexity of the lithium

supply chain.

A THIRD WAY?

It's not difficult to see why Albemarle is looking to find a

third way between the wild eastern Chinese carbonate market and

a Western hydroxide futures offering which rests on third-party

price assessments.

Ironically, the only other hard pricing reference point

looks set to disappear.

Pilbara Minerals ( PILBF ) has held regular auctions for its

spodumene via the Battery Metals Exchange, generating a degree

of price transparency at the upstream end of the production

chain.

However, Australia's largest independent miner has said it

now has little uncommitted material left to sell, meaning future

spot sales are "unlikely".

Albemarle's spodumene auction later this month will help

fill the pricing gap, but it seems highly likely that more

tenders of lithium in other forms will follow.

If there are enough of them, it may be possible for

Metalshub to generate a price index based on the physical

peer-to-peer transactions on its site.

Metalshub has built its trading platform around steel alloys

such as manganese and chrome.

As with lithium, such metals tend not to come in

standardised form and have historically not been exchange-traded

but rather assessed by the likes of Fastmarkets.

Metalshub has changed that dynamic and is now working with

the LME to open up a forum for the trading of low-carbon nickel

with the ultimate goal of producing a transaction-based "green"

nickel index to complement the LME's standard Class I contract.

Such digitalisation of markets "is becoming more relevant

and Albemarle supports this development", the company said in

its alert to customers about the upcoming "bidding event".

DESPERATELY SEEKING STABILITY

Global lithium mine production has mushroomed from 25,000

tons in 2010 to 180,000 tons last year, according to the United

States Geological Survey.

The world needs a lot more of the stuff if it's going to

move away from the internal combustion engine to reduce global

emissions.

But producers' ability to finance and build new capacity has

been undermined by a boom-bust pricing loop, with last year's

collapse being the latest downturn of the cycle.

To some extent this reflects the problems of aligning

production with demand in a fast-evolving market. But the lack

of a transparent benchmark price and limited ability to hedge

price risk is not helping.

The lithium supply chain is maturing but the metal's pricing

seems trapped at the early development stage.

Albemarle should be credited for trying to change that

problematic price paradox.

The opinions expressed here are those of the author, a

columnist for Reuters.

(Editing by Paul Simao)