The International Civil Aviation Organization (ICAO) has recognized the need to address aviation emissions and set a goal to reach net zero by 2050.

Sustainable Aviation Fuel (SAF) has emerged as a key strategy to reduce emissions in the aviation sector, with the potential to lower lifecycle GHG emissions by at least 50 percent from conventional jet fuel.

By raising the portion of sustainable aviation fuels, the industry can significantly reduce its carbon footprint and achieve long-term sustainability goals. Unfortunately, while sustainability goals are widely supported, economic competitiveness remains the fastest and surest path to growth. Given that the biofuel industry remains relatively young and detailed governmental mandates are often absent (depending on the country of legislation), the development of the SAF industry depends on policies that focus on economic incentives for adoption, like the credit system legislated under the Inflation Reduction Act (IRA) in the US.

The United States faces several difficulties in making its aviation sector more sustainable, particularly when it comes to producing and adopting SAF.

With ambitious targets set by the Sustainable Aviation Fuel Grand Challenge (SGC), the US government aims to deliver three billion gallons of SAF by 2030 and 35 billion gallons by 2050. However, meeting these targets poses significant hurdles, including the need for robust policy support, sustainable feedstock availability and cost competitiveness with conventional jet fuel.

The cost factor is particularly critical, given the focus on cost management and the growth in the low-cost carrier strategy, which accounted for 29 percent of the world market in 2018, according to the International Air Transport Association (IATA).

Policy frameworks and financial incentives are crucial in driving SAF production and bridging the supply gap, emphasizing the importance of long-term sustainability and climate goals in the aviation industry.
As the US aviation sector grapples with the transition towards SAF, stable policy frameworks and binding targets are essential to ensure the success of sustainable aviation initiatives. The reliance on public subsidies and out-of-sector pass-through costs to bridge the cost gap between SAF and conventional jet fuel highlights the need for more sustainable and cost-effective SAF technologies for long-term decarbonization.

Regulation and incentives

In the United States, SAF adoption is primarily driven by voluntary initiatives and financial incentives such as tax credits rather than binding mandates.

The US Sustainable Aviation Fuel Grand Challenge (SAFGC) aims to produce 3 billion gallons of SAF by 2030 and 35 billion gallons by 2050, supported by tax credits of up to $1.75 per gallon through 2027 alongside Renewable Identification Numbers (RINs) credits and other incentives to attract investment in the industry. However, the absence of detailed sustainability criteria creates uncertainty around the overall climate impact of these policies. To enhance SAF regulation, policymakers could consider implementing SAF blending mandates through federal legislation, setting minimum blend requirements for aviation fuel.

Despite the credit incentives for SAF production in the US, there are still significant challenges in narrowing the cost gap between SAF and conventional jet fuel. Perhaps more could be done to explore additional incentives to reduce SAF production costs and enhance the competitiveness of SAF in the market to address these barriers. Government programs like the LCFS in California supported the advance in technology represented by renewable diesel, allowing the market to finance the surge in the growth of renewable diesel capacity, which likely peaked in 2023 or will peak in 2024 and the same could be done with SAF products.

The long-term viability of SAF will much depend on the support from governmental incentives. As an investment in SAF is a long-term decision – typically, it takes three to five years between the project announcement of a SAF plant and the fuel commercialization – there’s always a risk associated with the frequent changes in the regulatory landscape that may happen over time. This aspect of the industry highlights the need for cooperation between the market and the regulatory entities to design incentive programs that aim for the industry’s resilience and long-term sustainability.

Implementing the second phase of the IRA will change the calculation of the fuel credit value, which may significantly impact the market depending on how the US. Internal Revenue Service (IRS) sets the baseline carbon intensity for each feedstock and the implied effect on credit values. In contrast to the LCFS program – which demands that every facility acquire a unique pathway for each feedstock and its entire production process – the IRA removes incentives for individual facilities to invest in carbon intensity reductions. Unlike the RFS or LCFS credits, instead of generating a CI score for each pathway, credits under the IRA rely on CI scores published annually by the IRS. Each year, the IRS will publish a table of emission rates for comparable types and categories of transportation fuels determined by lifecycle GHG emissions.

To reduce GHG emissions, despite the lack of incentives for specific facilities to reduce carbon intensities, the IRS will reduce the cap used as the cutoff CI score to qualify for credit generation.

The US aviation sector’s transition from fossil fuels towards SAFs hinges on narrowing the spread between SAF and conventional jet fuel. With only a few reported SAF prices to use as guidelines, it is not easy to estimate the spread precisely. This transition requires a robust framework considering resource supply, cost, and technological readiness to achieve near- and long-term production targets. By evaluating the effectiveness of policy levers and assessing the feasibility of expanding domestic SAF production, the US can work towards meeting its ambitious SAF targets while ensuring sustainable and cost-effective solutions for the aviation industry.

US lawmakers are not the only ones considering aggressive targets for SAF usage. The EU government has also set ambitious targets, aiming for a 20-percent blending rate by 2035 with an ultimate goal of a 70-percent blend rate by 2050. The EU faces similar challenges, with uncertainties about feedstock availability and concerns about the sustainability of biofuel sources. Additionally, the EU’s efforts to ban crop-based feedstocks pose challenges for the biofuel industry as it navigates between sustainability goals and the need for viable feedstock sources.

As the industry grapples with the evolving landscape, including government initiatives, elections and global competition for feedstocks, uncertainty and price volatility will continue. The US and the EU are navigating the complexities of meeting SAF targets, with the need for sustained incentives and the challenge of balancing increasing demand with sustainability criteria. The coming year will likely provide insights into the progress of these initiatives and the industry’s ability to overcome existing challenges in the SAF sector.

US SAF production

The US SAF industry remains nascent. According to Environmental Protection Agency (EPA) data, the industry produced 12.1 million gallons of SAF in 2023, up from 7.9 million gallons in 2022, and imported another 12.2 million gallons of SAF. The sharp increase in SAF production in 2023 marks a milestone in the SAF industry; however, it still has a long way to go before meeting the ambitious SGC goal of producing three billion gallons of SAF in 2030.

Even though SAF production grew more than 53 percent last year, the US SAF supply represents very little of the total jet fuel supply. In 2023, the US consumed 25.9 billion gallons of jet fuel, suggesting a blending rate of only 0.1 percent of domestic aviation fuel consumption. The industry must grow at a compounded annual growth rate (CAGR) of 200 percent to increase annual output from 12 million gallons in 2023 to three billion gallons by 2030 to meet the SGC’s target of three billion gallons of SAF production.

Fastmarkets estimates that three billion gallons of SAF production imply a feedstock demand of nearly 26 billion pounds, considering it is only vegetable and waste oils. However, the two primary feedstock sources available in the US – corn grain and soybean oil – will not meet the life cycle GHG reductions required by the incentive programs and, therefore, will not qualify for credit generation, a crucial component of SAF producer’s revenue.
On a global scale, the challenges are also enormous. According to the IATA, global SAF volumes reached 600 million liters (158 million gallons) in 2023, twice the volume of 2022.

The IATA expects SAF production to triple to 1.875 billion liters (480 million gallons) in 2024, accounting for 0.53 percent of jet fuel demand.

Challenges and risks for the SAF industry

As SAF is a relatively new industry, there is a lack of market information around it, which hinders stakeholders from navigating trade with clarity, thus potentially slowing down industry growth. There is also a problem when it comes to leveraging data and using this as a basis for expansion: a small-scale SAF production hampers the generation of reliable data, and at the same time, lack of reliable data hinders industry growth.

Due to the fact that this market is very susceptible to incentives and regulatory obligations, the SAF industry faces the risk of internal policy changes that could significantly alter its trajectory. The effectiveness of regulatory instruments is also a risk to the industry’s performance: D4 renewable identification number (RIN) prices collapsed from 150 cents per gallon in August 2023 to less than 50 cents per gallon in the first weeks of March. RIN credit revenue is a relevant element in the profitability calculation for all biofuel producers, and fluctuations in the price can either push biofuel producers out of the market or slow down the industry’s expansion in the US as the industry becomes less profitable.

Supply shocks caused by the aggressive expansion of the industry also create market distortions that can generate inefficiencies until the new production capacity is accommodated. When creating a new sector through incentives and regulation, the market often reacts with a wave of optimism and this eventually distorts actual trade conditions. After the initial optimism, we usually tend to see some adjustments in trading patterns that more realistically reflect the status quo. For instance, the more mature renewable diesel market is currently going through this exact phase, where there is a slowdown in expectations for industry growth and a correction of price distortions.

There is a global push for the decarbonization of energy consumption, led by advanced economies and followed by advanced developing countries, which exposes national biofuel markets to risks related to the stability of feedstock supply. With more countries creating or expanding their national programs for the domestic use of biofuels, competition for feedstocks will grow as demand increases, exposing countries dependent on feedstock imports to price shocks and supply disruption.

Over the next ten years, if the US feedstock supply will continue to rely on imported goods, like it has over the recent period, US domestic supply will be exposed to risks from changing sustainability policies in exporting countries. Adding to the dangers of building an industry on imported feedstock is the trend toward geopolitical fragmentation, which gained traction following the trade war between the US and China and continues to gain strength with rising political divisions between developed countries in the West and developing countries, particularly the BRICs alliance. The widening gap between the differing world views increases the risk of trade disruption motivated by political differences. It is also essential to factor into the risk analysis the potential for the governments of developed and advanced developing economies to recognize the value added to material that was until recently considered waste and craft policies that capture the additional value in the domestic market.

Policymakers must balance the success of the RFS and LCFS programs in incentivizing the conversion of substantial volumes of waste material into biofuel with increased stress on the world food supply and the impact on consumer prices. Still, if the trend continues, the next logical step in the industry is for major exporting countries to implement policies aimed at producing the fuel domestically and exporting it to the most attractive market. However, the trend toward global trade disengagement and protectionism suggests that more programs in developed countries will follow the example of the credits authorized by the Inflation Reduction Act that exclude imported volumes from credit generation.

SAF is relatively unique because its demand bridges countries and markets, policies specific to one country can potentially drive changes in different global markets. If countries currently without domestic biofuel policies and with feedstock supply move towards decarbonizing transportation, expanding global biofuel demand and rising competition for feedstocks could disrupt established trade relationships, as a domestic market can be more economically attractive to a local feedstock producer. Considering that the trend for decarbonization is growing internationally, over the next decade, the current strong reliance of the US industry on imported feedstock will no longer be viable, and this could delay or prevent it from meeting decarbonization goals due to a reduction in imported supply

View our SAF production and credit price data

The post Propelling forward: SAF and the path to a greener aviation industry appeared first on Fastmarkets.

• Oversupply of battery metals has pushed down prices
• Weak metals prices are causing black mass payables and inferred prices to fall
• Lower metal demand is leading to lower recycling utilization rates
• Refining under capacity will grow as an influx of end-of-life (EoL) black mass hits market
• Black mass payables expected to fall until 2026 before strong recovery
• Black mass inferred prices to increase over next 10 years
• Strategic partnerships are becoming increasingly important in the US and European recycling markets
• Certain advantages will separate out which companies will survive these market headwinds

1. Oversupply of battery metals has pushed down metal prices

High battery metal prices in 2022 incentivized additional metal supply to come online. However, this influx of additional supply of lithium, nickel and cobalt flooded the market causing prices to fall.

Despite this being a supply-side story, we have adjusted our battery demand forecast down 4-7% due to a weaker economic outlook and lower than expected electric vehicle (EV) sales. However, overall, we still expect the energy transition to lead to strong demand growth for batteries and the key battery metals which should mostly overshadow any macroeconomic issues.

2. Weak metal prices have caused black mass payables and inferred prices to fall

From September 19, 2023 to February 20, 2024, the Fastmarkets spot battery grade lithium carbonate equivalent (LCE) cif CJK fell 47%, the LME nickel cash official fell 17% and Fastmarkets cobalt in-whs Rotterdam fell 8%. NCM, NCA cif South Korea black mass nickel and cobalt payables trended downwards after peaking in July 2023 at 81.5%. In 2024, payables have been rangebound between 65.5-68.

Inferred black mass prices for NCM, NCA cif South Korea peaked at $6,590 per tonne in August 2023 before trending steadily downwards with a low of $2,088 per tonne on February 14, 2024.

3. Lower metal demand has led to lower recycling utilization rates and squeezed profit margins

Incentivised by the high metal prices of 2023, many new entrants joined the recycling market. Due to lower investment requirements and shorter timelines to get permits, we are seeing shredding facilities come online much faster than refining leading to overcapacity for shredding, particularly in Europe and the US. 

Fastmarkets is hearing caepx costs of £3 million for sorting, discharging and dismantling plants, £30 million for shredding facilities and £300 million for hydrometallurgical refining facilities. We also hear of timelines of 1-2 years to get a shredding operation online versus 5-10 years for hydromet to get online.

Overcapacity for shredding has led to strong competition for scrap batteries. Scrap battery prices weren’t hit as badly as black mass prices and European gate fees have fallen slightly. On the post-treatment side, an influx of primary metal supply and therefore lower demand for metals meant refiners had to compete with primary metal producers to supply the market.

Some refiners struggle to go beyond technical grade to battery grade and end up having to sell their technical grade battery metals and we’ve heard of technical grade running at a 20% discount to battery grade. Since black mass prices tend to trend a month behind metal prices meaning the refiners output was falling in value before their input costs were being reduced. All these issues have led to profit margins being squeezed with reports of some projects running at a loss and low utilization rates for shredders and refiners (as low as 20-30% for shredders).

The post Eight key trends for 2024 in the battery recycling market appeared first on Fastmarkets.

• Oversupply of battery metals has pushed down prices
• Weak metals prices are causing black mass payables and inferred prices to fall
• Lower metal demand is leading to lower recycling utilization rates
• Refining under capacity will grow as an influx of end-of-life (EoL) black mass hits market
• Black mass payables expected to fall until 2026 before strong recovery
• Black mass inferred prices to increase over next 10 years
• Strategic partnerships are becoming increasingly important in the US and European recycling markets
• Certain advantages will separate out which companies will survive these market headwinds

1. Oversupply of battery metals has pushed down metal prices

High battery metal prices in 2022 incentivized additional metal supply to come online. However, this influx of additional supply of lithium, nickel and cobalt flooded the market causing prices to fall.

Despite this being a supply-side story, we have adjusted our battery demand forecast down 4-7% due to a weaker economic outlook and lower than expected electric vehicle (EV) sales. However, overall, we still expect the energy transition to lead to strong demand growth for batteries and the key battery metals which should mostly overshadow any macroeconomic issues.

2. Weak metal prices have caused black mass payables and inferred prices to fall

From September 19, 2023 to February 20, 2024, the Fastmarkets spot battery grade lithium carbonate equivalent (LCE) cif CJK fell 47%, the LME nickel cash official fell 17% and Fastmarkets cobalt in-whs Rotterdam fell 8%. NCM, NCA cif South Korea black mass nickel and cobalt payables trended downwards after peaking in July 2023 at 81.5%. In 2024, payables have been rangebound between 65.5-68.

Inferred black mass prices for NCM, NCA cif South Korea peaked at $6,590 per tonne in August 2023 before trending steadily downwards with a low of $2,088 per tonne on February 14, 2024.

3. Lower metal demand has led to lower recycling utilisation rates and squeezed profit margins

Incentivised by the high metal prices of 2023, many new entrants joined the recycling market. Due to lower investment requirements and shorter timelines to get permits, we are seeing shredding facilities come online much faster than refining leading to overcapacity for shredding, particularly in Europe and the US. 

Fastmarkets is hearing caepx costs of £3 million for sorting, discharging and dismantling plants, £30 million for shredding facilities and £300 million for hydrometallurgical refining facilities. We also hear of timelines of 1-2 years to get a shredding operation online versus 5-10 years for hydromet to get online.

Overcapacity for shredding has led to strong competition for scrap batteries. Scrap battery prices weren’t hit as badly as black mass prices and European gate fees have fallen slightly. On the post-treatment side, an influx of primary metal supply and therefore lower demand for metals meant refiners had to compete with primary metal producers to supply the market.

Some refiners struggle to go beyond technical grade to battery grade and end up having to sell their technical grade battery metals and we’ve heard of technical grade running at a 20% discount to battery grade. Since black mass prices tend to trend a month behind metal prices meaning the refiners output was falling in value before their input costs were being reduced. All these issues have led to profit margins being squeezed with reports of some projects running at a loss and low utilization rates for shredders and refiners (as low as 20-30% for shredders).

4. Refining undercapacity to grow as influx of EoL black mass hits the market

We expect exponential growth of EoL scrap and, by 2033, we expect enough scrap batteries (production scrap and EoL) to be able to meet shredding capacity.

However, because the influx of EoL black mass is rising faster than the current announced refining project expansions, we expect the market to move into greater undercapacity for black mass refining.

Refining projects face challenges of higher capex, nervous investors, challenges getting to battery grade metals, trickier impurities such as fluorine and heavy metals, permits and waste disposal challenges.

5. Black mass payables expected to fall until 2026 before strong recovery

We’ve seen a strong correlation between the previous month Fastmarkets spot battery grade lithium carbonate cif CJK price (M-1) and the current NCM, NCA cif South Korea cobalt and nickel payables. This is because contracts will use today’s black mass payable with last month’s average metal price.

This means when our LCE price falls, a month later the black mass payable will fall. We forecast weakness in the LCE price until 2026 before trending upwards to 2034. Based on this, we expect the NCM, NCA cif South Korea nickel and cobalt payable to fall until 2026 before a strong recovery.

6. Black mass inferred prices to increase over the next 10 years

We forecast the LME nickel cash official price to remain weak until 2019 being rangebound at low levels before seeing a strong recovery until 2034.

The story for cobalt is a little different with strong price growth until 2034 due to a growing cobalt deficit. When we combine our black mass payable forecast with our LCE, nickel and cobalt price forecasts this gives us an NCM, NCA cif South Korea inferred price forecast increasing significantly until 2034. Please contact Fastmarkets directly to find out more about actual price values from our price forecasts.

7. Strategic partnerships are becoming increasingly important in the emerging recycling markets of Europe and the US

The US and European value chains are made up of a larger number of smaller-sized companies making strategic partnerships increasingly important. These partnerships can provide access to funding, access to a new region or market and access to a wider network of the supply chain.

Small scale companies are looking for larger companies for investment and to leverage their network to help them keep up with their peers and prevent them getting pushed out of the market. Non-recycling companies are looking for where they should try to enter the recycling value chain and when is best to do so.

Asian companies are looking for small scale European companies especially ones who have permits who can help them to enter the European market. Investors are looking for companies that have the best growth potential. These strategic partnerships are likely to evolve into more vertical integration.

There is a lot of vertical integration in the Asian market, which is 5-10 years ahead, such as CATL and BYD, whereby a production scrap cell can be recycled back into a new cell by the same company in the same country.

In the US there might be a scrap battery collector, a company that does sorting, discharging and dismantling, a shredder, a refiner going to technical grade, a refiner going to battery grade, a pCAM or CAM producer and then eventually the finished product will likely go to Asia to be made into a cell before either being finished into an EV in Asia or possibly returning to a US gigafactory.

8. Certain advantages will separate out which companies will survive these market headwinds

The battery metal and recycling markets have short-term challenges to face but longer term, the market looks set for strong growth.

Recently, there have been a lot of new entrants to the recycling market which is looking crowded. We expect strong competition and eventually for the market to contract to a smaller number of stronger companies.

Fastmarkets has identified the below as key advantages that we expect the companies who will survive the downturn to have.  

• Offtake agreements to secure feedstock and offload output
• The know-how to produce downstream products
• Competitive technology with higher metal recovery rates
• Ability to get permits and overcome regulatory challenges & delays
• Strategically beneficial partnerships
• Access to financing to survive the short-term headwinds

Get all the latest insights on the battery recycling market

The Fastmarkets Battery Recycling Outlook includes 10-year battery supply and black mass price forecasts to give material manufacturers, battery makers, automakers and battery recyclers the insights and forecasts to understand and leverage the increasing recycled supply. Keep up to date with cobalt price insights and lithium insights on our dedicated market pages.

What’s inside the report?

• Forecasts and outlooks for black mass and battery raw materials
• Assessment of technology and the major recyclers
• Intelligence on battery recycling capacity build-outs
• Predicted scrap vs manufactured volumes
• Insights on the usability of expected volumes
• Key ESG and supply chain qualification criteria
• Economics of battery chemistries and technologies
• Access to expert analysts

The post Eight key trends for 2024 in the battery recycling market appeared first on Fastmarkets.

We wrote in the report in January that the dominant trend on LME tin is a bear market rally at work.

Below are the excerpts from the report:

What happened in the tin market?

This is a bear market rally that we have been anticipating since our third quarter round-up report (2023) in which we wrote in detail that dips should remain bought because the tin price could produce a bear trap first, before moving higher.

While there is no absolute certainty that the previous price structure will continue to work, we remain confident that should it work, the LME tin price would be able to break north of $28,000 to $29,000 per tonne before it starts to consolidate.

We suspect that global supply uncertainty, especially coming from the Myanmar Wa state, will play its role in supporting higher tin prices. Additionally, improving macroeconomic conditions, backed with positive seasonality, should attract fund managers to turn net long on tin again.

Let us compare the LME tin monthly chart that we inserted in that January report to the latest chart.

January report

Latest LME tin monthly chart

Here are the weekly charts for comparison:

January report

Latest LME tin weekly chart

While in hindsight, everything seems so clear and easy to follow, Fastmarkets Research aims to bring the most trusted analysis to give subscribers the best knowledge, probability, support and resistance.

We also offer as a clear, visual outlook to enhance the decision-making process by offering in-depth market analysis for the base metals market.

To understand the complex market conditions influencing price volatility, download our monthly base metals price forecast. Get a free sample.

The post What’s in store for the LME tin price? appeared first on Fastmarkets.

If you’re interested in reading more about the forecasts for other crucial materials, we’ve put together a 2024 commodity market outlooks hub here.  

US steel long products slightly flat

As we expected, US long steel product prices were flat to slightly up over the past month despite the negative effect that the wintry weather has had on construction activity. But we believe that impact to be temporary in nature and that soon the market will likely see its usual first quarter bump.

Several factors could support that. While to date the impact of recently passed legislation upon the construction and manufacturing sectors has been limited, we believe that activity will pick up as the year progresses, especially once the Federal Reserve begins to step down interest rates. However, with the American Institute of Architects’ Architecture Billings Index remaining contractionary at 45.4 points in December, it is uncertain how many new nonresidential construction projects will be added into the pipeline. 

Scrap market prices facing pressure in near-term

In the scrap market, we broadly anticipate that 2025 will be a moderately stronger year for scrap prices than 2024, with this primarily driven by an expected rebound in electric arc furnaces (EAF) output across much of the globe. Nevertheless, in the near term, prices across much of the globe are expected to face pressure in part as downstream steel demand is fragile, limiting upward potential for scrap demand and prices. 

In the US scrap market, prices are expected to cool in the near term. Meanwhile, in Europe, Fastmarkets anticipates some further weakening in ferrous scrap prices in the near term amid sluggish downstream steel demand indicators, notably in terms of construction sector output.  

But scrap prices are not anticipated to crash amid a projected slight recovery in crude steel production within the EU and in Turkey this year. Moreover, in the medium term, while reconstruction activity in Turkey has been slow following last year’s earthquake, some works will likely start to take place this year, which should provide some steel demand and, in turn, bolster scrap requirements.  

In India, demand is facing some pressure currently as spreads between steel and scrap are tight amid slowing construction, helping pressure steel producer margins. The spread between domestic rebar and imported HMS #1&2 (80:20) scrap was $142 per tonne in late February, well below the long-term average across 2015-2023 of $174. This will help dampen Indian scrap requirements in the near term and may encourage consumers to also turn to lower priced domestically produced direct reduced iron (DRI), which was assessed at $333 per tonne ex-works in late February, $47 per tonne below HMS #1&2 (80:20) scrap. 

Discover the latest short-term forecasts for the ferrous scrap market in one place with Fastmarkets short-term forecasts and analysis. Understand market trends and anticipate what’s ahead.

Aluminium price recovery expected to come later in 2024

The aluminium price has seen range-trading recently, with a decline since October attempting to stabilize. Initially, optimism regarding China’s economic recovery led to an overestimation of its stimulus measures, but disappointment in its performance shifted sentiment to pessimism, impacting base metal prices. 

However, there’s a belief that the market is now underestimating China’s potential for growth-supportive policies, which could prompt a scramble if the economy strengthens. Our base metals outlook suggests a gradual stabilization in the latter months of the year, with expectations of a more favorable macroeconomic environment as China’s recovery accelerates, potentially influencing base metal prices positively. While there may be further downside pressure, lower values are expected to attract dip buyers, contingent upon evidence of follow-through buying to justify a positive year-end outlook. 

Navigate the complex base metals market with the latest short-term forecasts in one place. Learn more about our base metals forecasts today.

Lumber prices generally on a steady upswing

The good news for lumber mill operators is that the worst of the pain appears to be behind us now. Lumber prices across most species and dimensions found their floor in the fourth quarter 2023. Most items have been on a steady upswing since then as buyers begin to stock up for the spring building season. After falling to just $373 per MBF in November, the Fastmarkets Random Lengths Framing Lumber Composite Price (FLCP) has rebounded and then averaged about $400 per MBF in January 2024. However, this is still lower than the index average last year of $411 per MBF. So, while mills are happy with the direction prices are moving, at these levels, the industry is still feeling pain, with many mills running with variable costs of production in the range of $400-450 per MBF. The market saw some modest erosion in February, with the FCLP averaging $389 per MBF, though the final week in the month showed an upward trend 

The market balance should allow for a steady increase in lumber prices throughout 2024 for most dimensional and industrial-grade items as demand growth advances faster than supply. However, at 80% operating rates for the year and a substantial amount of temporary downtime being taken, there is enough spare capacity available to step into the market this year that any major rally will be stunted by a supply response. Offshore supply has also shown its ability to respond to and quell major price rallies given the flexibility of European producers. 

Find out more about Fastmarkets’ new repair and remodeling index for those operating within the wood products markets who are looking for much-needed visibility in this often opaque segment of the market.

Slow macroeconomic outlook

The macroeconomic outlook for 2024 could be characterized by a general slowness, as it’s unlikely to be a year of solid growth for global economies. There are three key factors influencing purchasing decisions.  

1. High inflation will impact consumer demand and play a critical role in North American and European economies, while China’s consumer behavior will also be crucial given it provides so many goods consumed globally 
2. The significance of renewable energy and electric transportation in the global economy, amidst geopolitical risks and potential positive impacts from decreased interest rates on consumer spending 
3. India’s potential expansion in the global economy, particularly in maritime transport, indicating significant growth potential. 

Want to get the full picture of the macro factors impacting purchasing decisions? Get more details and analysis in this extended macroeconomic outlook for 2024 here.

Get more coverage of the raw materials prices critical to the construction industry

For industry participants navigating this complex landscape, having access to market-reflective price data and in-depth analysis is crucial. Stay informed with Fastmarkets’ comprehensive market intelligence and forecasts, which will help guide your strategic business decisions and keep projects profitable in 2024 and beyond.  

To learn more about Fastmarkets’ construction suite, visit our dedicated construction industry hub today.

The post Construction industry outlook: Raw materials price trends in 2024 appeared first on Fastmarkets.

Don’t see the material you’re responsible for procuring listed here? We’ve produced 2024 forecasts for a host of other crucial raw materials, available on our 2024 commodity market outlooks hub.

Sluggish macroeconomic outlook

In the 2024 macroeconomic landscape, characterized by a general slowness, three key factors will influence purchasing decisions:

• Consumer demand’s pivotal role in North American and European economies, focusing on spending rather than sentiment, with China’s consumer behavior also crucial
• The significance of renewable energy and electric transportation in the global economy, amidst geopolitical risks and potential positive impacts from decreased interest rates on consumer spending
• India’s potential expansion in the global economy, particularly in maritime transport, indicating significant growth potential.

These factors underscore the importance of monitoring consumer behavior, renewable energy trends and India’s economic role for FMCG businesses.

Get the full picture: Three macro factors to impact purchasing decisions | 2024 preview – Fastmarkets

Pulp price recovery underway

In our recent analysis of global pulp markets, the focus was on insights from London Pulp Week (LPW), shedding light on key takeaways relevant to the pulp prices forecast for 2024.

Notably, there’s a pulp price recovery underway in China, driven by a surge in demand and restocking-related purchases, though questions arise regarding the sustainability of this rally. The discussion points from LPW underscore shifts in both supply and demand dynamics: while pulp producers have managed to reduce inventories through increased shipments to China and market-related downtime, capacity closures have also impacted the supply side.

Looking ahead, the industry anticipates a healthier market in 2024 with cleared inventory overhang and potential for tighter conditions, but concerns linger around high-interest rates, supply disruptions and the need for synchronized demand growth across major regions. This analysis provides valuable insights for stakeholders in the fast-moving consumer goods sector, particularly those reliant on pulp-based packaging materials, offering a glimpse into the factors shaping pulp prices and market dynamics for the upcoming year.

Read more here: What’s in store for global pulp markets? | 2024 preview – Fastmarkets

Paper and packaging landscape shows ‘significant volatility’

The global recovered paper (RCP) market has seen significant volatility in recent years, with fluctuations impacting prices across regions.

In North America, a surge in recycled-fiber-based packaging capacity drove prices up, despite a drop in average annual prices. In Europe, weak domestic demand led to price fluctuations, while in Asia, prices fell due to sluggish demand and increased competition. Geopolitical tensions, such as the Red Sea crisis and uncertainties in the Chinese and US economies pose additional challenges for the RCP market in 2024.

Despite growth predictions in certain sectors, like Russia’s corrugated packaging market, labor shortages and geopolitical factors continue to impact the global procurement landscape in the FMCG market.

Get more insights into the global paper and packaging market:

• Key clues to watch out for in the global recovered paper market | 2024 preview – Fastmarkets
• North American liner price rises impact demand outlook for boxmakers  – Fastmarkets
• Russian packaging market set for modest growth in 2024 amid uncertainty – Fastmarkets

Increasing demand for ‘green’ aluminium

The food packaging sector in China faced challenges throughout 2023. In 2022, driven by the global pandemic, there was a notable increase in demand for disposable aluminium packaging. However, as pandemic-related restrictions eased worldwide in 2023 and the pandemic-induced economic trends diminished, the consumption of aluminium packaging primarily remained within the domestic market in China. This shift resulted in a downturn for the paper packaging industry overall, accompanied by a decline in prices.

The market has seen increasing demand for low-carbon aluminium within the beverage and packaging industry, aligning with global efforts to reduce greenhouse gas emissions. Advancements in low-carbon primary aluminium, including carbon-free smelting technologies, are facilitating the production of close-to-carbon-neutral packaging. Fastmarkets’ European aluminium low-carbon differentials reflect the market’s response to these developments, signaling a shift towards sustainable practices in the aluminium industry.

Read more: Low-carbon aluminium to become requirement for beverage and packaging industry: Ball Corporation – Fastmarkets

Aluminium recovery expected in latter half of 2024

The aluminium price has seen range-trading recently, with a decline since October attempting to stabilize. Initially, optimism regarding China’s economic recovery led to overestimation of its stimulus measures, but disappointment in its performance shifted sentiment to pessimism, impacting base metal prices.

However, there’s a belief that the market is now underestimating China’s potential for growth-supportive policies, which could prompt a scramble if the economy strengthens. Our base metals outlook suggests a gradual stabilization in the latter months of the year, with expectations of a more favorable macroeconomic environment as China’s recovery accelerates, potentially influencing base metal prices positively. While there may be further downside pressure, lower values are expected to attract dip buyers, contingent upon evidence of follow-through buying to justify a positive year-end outlook.

Palm oil prices stabilize on strong export demand

Palm oil, the world’s most widely used vegetable oil, faces increasing demand beyond traditional uses due to its role in renewable energy production. However, stagnant production in major producers like Indonesia and Malaysia, coupled with geopolitical and weather-related volatility, has led to severe price fluctuations in recent years.

While prices soared in 2022 due to supply fears and policy shifts, they have since stabilized, though tight supply conditions persist. Looking ahead to 2024, prices are expected to remain relatively high, supported by strong export demand and lower production forecasts. Factors such as government policies, weather patterns like El Nino and international regulations on renewable energy will continue to influence palm oil prices and production levels.

Find out more: Palm oil price and production outlook – Fastmarkets

Tracking commodity prices for the FMCG sector is critical

In conclusion, the 2024 outlook for key raw materials vital to FMCG production reveals a landscape influenced by macroeconomic factors, market dynamics and sustainability trends. As consumer demand remains pivotal amidst a general economic slowdown, FMCG businesses must monitor trends in spending, renewable energy adoption and India’s economic expansion.

Insights from the metals, forest and agriculture sectors highlight evolving supply and demand dynamics, with opportunities and challenges shaping pricing and availability. For stakeholders navigating these complexities, ongoing analysis is crucial to adapt and thrive in the ever-changing FMCG landscape. Stay informed with Fastmarkets’ comprehensive market intelligence and forecasts, guiding strategic decisions for success in 2024 and beyond.

Find out what’s in store for other key materials used in the production and distribution of fast-moving consumer goods, including wood pulp and paper, base metals and pallets. Visit our 2024 outlook hub.

The post Fast-moving consumer goods: How raw material prices will impact costs in 2024 appeared first on Fastmarkets.

That has led to higher demand for palm oil beyond its traditional uses, with the USDA forecasting palm oil consumption in 2023-24 to grow by 4.76% on the year to 78.06 million tonnes. 

At the same time, palm oil production has been stagnating in recent years, with the world’s two largest palm oil producers Indonesia and Malaysia experiencing lower yield rates and negative growth in oil palm planted area, capping global supply growth as the two countries remain responsible for around 85% of the world’s palm oil supply.   

The shift in supply and demand fundamentals, coupled with extreme volatility stemming from geopolitical changes, weather phenomena and changing government policies have also led to severe fluctuations in palm oil prices over the last few years.  

View our analysis of palm oil price trends

Palm oil price trends in 2022 and 2023 

Palm oil witnessed unprecedented price swings in the last two years, accelerating to notch multiple record high prices in 2022, testing MYR5,000-7,000 per tonne and then decelerating in 2023 to 20% below the average price levels seen the year before. 

Prior to 2022, palm oil prices had ranged between MYR 2,000 to under MYR5,000 per tonne. 

Palm and other edible oil prices were on an upward trajectory in 2022 on a perfect storm of Russia’s invasion of Ukraine in February, setting off supply fears for sunflower oil from the Black Sea. 

This was shortly followed by Indonesia’s palm oil export ban between March and May, usurping around 2 million tonnes of palm oil from global exports, all whilst Argentina – the world’s largest soybean oil exporter – was experiencing drought-like weather, decimating millions from its soybean and consequently soybean oil supply availability.  

The trifecta pushed crude palm oil (CPO) futures on the Bursa Malaysia Derivatives Exchange to reach an all-time high of MYR7,104 per tonne ($1,632) April 29 2022, with prices of related veg oils also experiencing spikes in futures and cash prices.  

Since July 2022, prices have overall trended downwards as global edible oil supply tightness gradually eased and importing countries also managed their demand, though this has not stopped governments from adjusting their food import and export policies to contain inflationary fears and ensure a stable edible oil supply.    

In February-April 2023, the Indonesian government moved to restrict its palm oil exports as part of measures to keep prices and supply of local cooking oil stable ahead of the Ramadan fasting month and Eid holiday season.  

It also raised its domestic market obligation (DMO) for that period, requiring producers to supply more cooking oil locally before they would be allowed to export.  

The move, coupled with seasonally lower production in the first quarter of 2023 saw CPO futures on Bursa Malaysia touch a multi-month high of MYR4,352 per tonne on March 3 before easing for the rest of the month.  

CPO prices then tested the MYR4,000 per tonne level again in July, when Russia withdrew from the Black Sea Grain Corridor Initiative and escalating tensions renewed worries over sunflower oil supply from the region and pushed up global edible oil prices. 

View our veg oil prices

Prices so far and outlook for 2024 

CPO prices breached the MYR4,000 per tonne level for the first time in five months to close at MYR4,017 per tonne on January 26, though prices were unable to sustain at the level following downward pressure coming from weaker rival oils and slower export demand for January.  

This, despite palm oil supply expected to remain tight in Q1 2024 on account of seasonally lower production and poor weather in recent months which has affected harvesting work.  

Regardless, prices are expected to trade to a high of MYR4,000-4,200 per tonne on the most active CPO futures contract on the BMD in the first three months of 2024, with demand likely to pick up in February ahead of the Muslim Ramadan fasting season in March and Eid festive period in April.  

CPO prices are also generally expected to do better in 2024 on average to the previous year’s level of MYR3,796 per tonne ($832 per tonne), largely underpinned by lower-to-stagnant production outlook amidst strong recovery in export demand. 

Main factors governing palm prices in 2024, in addition to supply and demand fundamentals, include government policies, resultant effects of El-Nino, biodiesel blend policies, strength of China import demand and E.U policies surrounding RED II or Renewable Energy Directives and EUDR or the European Union Deforestation Free Regulation. 

Learn more about how to use agriculture prices in contracts

On production 

Malaysia’s CPO production is projected to notch 18.50 to 18.75 million tonnes in 2024, or between a fall of 0.30% to a meagre rise of 1.06% from 18.55 million tonnes posted in 2023. 

The second largest producer is expected to reap the results of an increased number of migrant plantation workers in its productivity, after numbers were restricted in 2020-2022 due to Covid-related policies and hangups in government-to-government negotiations.  

That is expected to help counter the effects of stagnating yields and declining oil palm planted area, though time will tell of its efficacy.  

Meanwhile, the largest palm producer in the world, Indonesia is projected to be largely unchanged at 49 million tonnes in 2024 from the previous year, undermined by adverse weather and slower pace of re-planting.  

Another swing factor would be the El Nino effect, which may show up in yields as well after a prolonged period of dryness in key plantation areas during the third quarter of 2023.   

However, the effect is unlikely to be as severe as the El Nino event in 2015-2016, which saw production in Malaysia fall by 13% on the year while Indonesia’s output was slightly higher on account of younger, higher-yielding trees. 

The post Palm oil price and production outlook appeared first on Fastmarkets.

Our three key takeaways are summarized below:

1. EV sales will remain strong but with a slower growth rate

We forecast global EV sales growth to increase by 36% year-on-year in 2024, compared to an estimated 62% in 2023. While demand will remain strong, it will be slower due to sluggishness in China and high interest rates in Europe and the US.

2. PHEVs and HEVs will increase in popularity, while BEVs struggle

Plug-in (PHEV) and hybrid (HEV) EV sales growth is rising at a stronger rate in the US and China compared to battery EVs (BEV).

We believe that this trend will continue this year, particularly in China, where EV adoption in Tier 1 is saturated, and more rural areas with less access to EV charging points are now taking on EV adoption. This will have an implication on battery and metal demand given the smaller battery packs in PHEVs.

3. EV sales could slow on a Trump victory

We have modeled what a potential Trump presidential election scenario could do to US EV sales and lithium demand. We’re expecting that sales growth would slow, resulting in sales being 5% lower by 2034, and as a result, US lithium demand 7% lower by 2034.

All of these updates can be found in our upcoming Q124 lithium, cobalt, nickel, manganese and copper long-term forecasts.

The post What’s in store for EV demand in 2024 and beyond? appeared first on Fastmarkets.

Up to that point, Ukraine – its crush industry decimated by relentless infrastructure attacks and genuine question marks over its oil export capacity – had switched to exporting sunseeds over oils, but the return of access to the deep water ports had at least brought some semblance of normality. As the Ukrainian military dug in and pushed back, European efforts to wean themselves off the mighty Russian oil barrel brought fresh impetus to a biofuel space that had already been bolstered by US President Joe Biden’s Inflation Reduction Act.

On both sides of the Atlantic, two giant economies laid out their plans to produce millions of tonnes of sustainable aviation fuel (SAF), driving traders in every form of vegetable oil-related and animal fat-related production into a frenzy over the potential demand outlooks.

With the US targeting 35 billion gallons of SAF production by 2050 – more than twice the current ethanol mandate that soaks up over 10% of the world’s entire corn production – Europe added fuel to the fire with a plan to adopt SAF in 70% of all aviation demand over the same timeframe. Used cooking oil (UCO) was at the tip of the spear, but basic calculations had already established that UCO alone would never account for the volume, firing demand prospects across the wider vegetable oil complex as a result. As the year rolled on, even with Argentina suffering ongoing and persistent drought, Brazil’s huge soybean crop began to tilt the focus away from supply fears, while the lingering doubts over China’s economic recovery post-Covid stubbornly refused to dissipate.

For the twin giants of the complex – palm and soybeans – the assumption that both were lining up in the path of the new biofuels juggernaut suffered a series of challenges, as margins for the US production sector wilted in the face of new capacity coming online.

That and setbacks from the US government took the lustre off the biofuels complex – as mandates for 2023, 2024 and 2025 underwhelmed – before news from Brazil raised the curtain on a whole new feedstock front.

Ethanol and sugar producer, Raizen confirmed it had got backing for its sugarcane-based ethanol as a feedstock to SAF production in August, in a move that kicked open the door to non-oilseed feedstocks in lucrative aviation decarbonisation efforts. That in turn teed up a struggle for the future of corn-based ethanol – which currently does not comfortably fit in the SAF feedstock mix unless married to carbon capture efforts. Nonetheless, it remains a potent potential feedstock in the alcohol-to-jet mix and could drag corn into the upheaval through supply of potentially billions of gallons of corn-based ethanol.

Looking ahead into 2024, some of these themes will spill over from the old year into the new, with some current trends already pointing the way for 2024.

European biofuel premiums have slumped through the latter part of 2023, a combination of oversupply from controversial Chinese used cooking oil-based biodiesels, and poor demand with traders estimating that Europe’s diesel demand is now declining at 5% per year. That is driven by the twin effects of increased electrification of the car fleet and a swing away from diesel and towards gasoline or hybrid powertrains.

With most European mandates still percentage-based, the decline in underlying diesel demand equates to a direct decline in biodiesel demand at a time when competition for feedstocks is only likely to intensify. An EU-backed investigation into the Chinese biofuel flows and a general unwillingness to look at crop-based fuels in the European context could alleviate some of the tensions there but raise questions over the viability of the European sector to compete with its US rival as momentum builds.

Coupling that demand outlook with the physical reality of farmers’ production efforts – where output records have been tumbling around the world – and you have the foundation of a reasonably bearish 2024 ahead. Zeroing in on key elements to watch in the year ahead and there is some familiar factors to consider, along with some uncertainties ahead.

Black Sea corridor

A major swing factor in the year ahead will be Ukraine’s ability to continue to connect its agricultural product to the wider global market. Gingerly, the first signs of the self-proclaimed humanitarian corridor have brought a pick up in export pace, but the onset of winter weather across the Black Sea has made it hard to gauge how significant any restored corridor could be.

For the country’s oilseed crop, an expansion in planted area is likely to bring a bigger sunflower harvest while Russia is expected to harvest its own record 17.5M tonnes sunflower crop. Despite those production forecasts, sunseed could yet buck the bearish trend – as the success of previous export corridors has drained Ukraine’s stock levels, while hot, dry conditions in Bulgaria and Romania have cut production from Ukraine’s neighbours and rivals.

Key will also be the health of demand into the main importing nations of Turkey, India and China.

El Niño

The gradual shift from consecutive years of La Niña patterns, bringing excess moisture to Southeast Asia and Australia and drying out the southern tip of South America, to the opposite El Niño is already potentially bringing an end to the linear progress of Brazil’s soybean expansion. Monsoon conditions across southern Brazil have delayed planting, while hotter, drier weather in the north – uncomfortably hot in some parts – have already seen estimates for 2024 pared back. Some domestic voices are now calling for output in the low 150M tonnes range; still close to a record, but representing a loss of up to 10M tonnes versus initial expectations.

That could alleviate fears of oversupply, but with issues also dogging major waterways, including the Amazon, the Panama Canal, Argentina’s Up River hub and the Mississippi, further dry conditions could also complicate export logistics and make final production figures almost academic. For Indonesia and Malaysia, the move to El Niño is also likely to bring dry conditions and raise the risk of forest fires, cutting back production amid already ageing and declining palm oil plantations.

Regulation

Finally, a staple in outlooks and the unpredictable wildcat in the mixture is the influence of government as ongoing legislative initiatives unfold and with a series of important elections looming through 2024. At the centre of that is the renewed appetite for increasing mandates, with most European nations committing to boosting the use of sustainable aviation fuels to 2% by 2025, before rushing to 20% by 2035, just as multiple countries introduce bans on the sale of new cars with internal combustion engines.

The year ahead should provide the first clear signs of how that move is progressing, but Europe’s biofuel sector is facing a hefty challenge with new capacity coming online as feedstocks are being increasingly drawn to the US. Europe is still to fully square the circle of how exactly to hit increasingly ambitious percentage-based SAF volumes when we are flying more, but the decision to cut out palm oil and any food-based vegetable oils makes the target ever more challenging within the current timeframes.

On top of the waste-based mantra, the European Union has doubled down on tightening its import slate, targeting deforestation in a wide-ranging proposal to wean the bloc off any products from sites that have undergone land use change. Brazilian soybeans and palm are likely to be in the forefront of that legislation, which comes into force on 30 December 2024 and is expected to require segregation of approved inbound EU product flows from those that have yet to achieve certification.

Meanwhile, Brazil is also wrapped up in its own internal debate as the country faces greater pressure to reduce the official moisture level in its soybean exports from 14% to 13%. While it looks relatively innocuous, the effort that a tropical country would need to expend to reduce that single percentage point and bring it into line with international standards would likely put domestic farmers at a disadvantage, and mean more beans needed for each tonne shipped.

Both China and the EU are pressing for the reduction, but any officially sanctioned move would likely result in either formalising discounts for 14% beans or increased costs as farmers attempt to dry out their beans to meet the new standard. The government and industry bodies are consulting on the proposal.

View our grains and oilseeds news, prices and analysis

The post Planes, supply trains and automobiles hold key for oilseeds in 2024 appeared first on Fastmarkets.

Fastmarkets assessed the spodumene min 6% Li20, spot price, cif China at $800-900 per tonne on Wednesday January 24, down from $800-950 per tonne on January 19 and down by nearly 89% year on year.

As a result, participants, particularly consumers, are looking to restructure the basis for long-term contracts to guard against volatility in the future.

The area that has had the most prominent change has been the quotational periods (QPs) for contracts.

Historically, the market has operated a backward-looking basis, using “month minus” (M-) QP for contracts, meaning that the price settlement was based on a previous month’s average.

But, amid significant volatility in lithium prices in 2023, consumers are pressuring to have this QP basis changed to a forward basis (M+) to guard against volatility and shifts in lithium chemical prices, for which spodumene is used as a feedstock.

This means that the contract is settled by the average of a future monthly price, rather than a previous month.

“It’s a logical move from a converter perspective as it reduces exposure to price risk,” one chemical producer source told Fastmarkets.

“It is likely that these [forward] QPs will become the norm going forward,” the source added.

Lithium hydroxide prices on a spot basis declined over 80% in 2023, with the Fastmarkets’ lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea falling from $83-84 per kg on January 3, 2023, to $14.50-16.50 per kg on December 29, the final pricing session of 2023.

Lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea similarly declined from $78-80 per kg on January 3, 2023, to $14.50-16.00 per kg on December 29.

The declines have continued into 2024, with bearish sentiment persisting in the market and demand weak in the run up to Lunar New Year on February 10.

Fastmarkets more recently assessed the lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea at $14-15 per kg on January 23.

The lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea was assessed at $13.50-14.80 per kg on the same day.

Greater ties to chemicals

The price trajectory of spodumene prices correlates to prices of lithium hydroxide and carbonate in the physical market, where there is more regular liquidity, and in recent months, use of formula pricing has increased significantly in the market, supporting the move to forward QPs.

Data points collected for Fastmarkets’ lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea have increased nearly to 20% in 2023 compared with the year before.

Those data points include deals, deal heards, bids, offers and market participant indications.

While exact formulas vary from contract to contract, many of them include elements directly pegging the valuation of spodumene to the prices of lithium hydroxide and carbonate in the physical market.

This is in some ways similar to a payables pricing method, which are common in other battery raw material markets such as cobalt and nickel.

In cobalt, due to oversupply, market discourse throughout the past year has revolved around a focus on using more intermediates prices for materials such as cobalt hydroxide and cobalt sulfate.

A formula that includes Fastmarkets’ spot lithium hydroxide and carbonate prices on a CIF China, Japan and Korea basis also allows market participants to hedge the chemical price component on exchanges such as the Chicago Mercantile Exchange (CME).

Open interest for the CME lithium hydroxide contract was at 18,079 lots on January 23, up from 14,558 at the beginning of the year.

While lithium market participants are contemplating price mechanisms such as payables, interest in a robust outright spot spodumene price to anchor longer-term contracts remains.

Fastmarkets increased the frequency for its spodumene min 6% Li2O, spot price, cif China to twice a week from a fortnightly basis to reflect the increase in interest in the price and also so it can better reflect daily chemicals prices.

“It’s important to remember that lithium is still an immature market in a lot of ways,” an international trader said.

“The market is still trying to find a pricing mechanism that everyone is comfortable with,” the trader added.

Debates over timing

One of the key hurdles for the switch in the underlying QPs of spodumene contracts is the timing in which the QP is based, for instance M+1 or M+2.

Participants in the physical market noted that the preference for many Chinese customers was for an M+2 basis for contracts.

But the willingness for the adoption of these QPs appears to be largely based on geographical lines at present.

“Producers in South America are much more amenable to M+2 [QPs] given the time that it takes material to ship from the region to China,” a second trader noted.

Meanwhile, Australian producers, who make up the majority of spodumene production globally, are less willing to accept such terms.

This is largely due to the shorter timeframes for shipping material from country to country. An M+2 QP could see a situation where material arrives at the consumer before the price is determined, increasing risks for both parties.

Global ocean freight firm Maersk estimates that typical ocean freight times between Australia and China are around 25-35 days, depending on destinations and time of year.

This compares with estimates of closer to 30-50 days for shipping from Brazil.

Keep up to date with the latest lithium prices, data and forecasts on our dedicated lithium price page.

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