Plight of the PRA and how Benchmark became the lithium industry’s reference price

Since its inception in 2014, the rise of Benchmark Mineral Intelligence as the lithium industry’s reference price has been the ideal case study for how the commodities publishing industry is changing.
Scandals such as libor and credit ratings fixes have brought scrutiny (and with it a police raid) on commodity price publishers. This has resulted in new stamps of approval such as IOSCO certification, something that is alien to a lithium industry undergoing an evolution in demand.
Here we outline how the price assessment industry is evolving and how trust is central to Benchmark’s lithium-focused approach that is cutting a new, more accurate and transparent path forward.

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By Simon Moores, Managing Director, Benchmark Mineral Intelligence

There has been a lot of discussion over lithium prices in the market place of late, primarily thanks to lithium’s demand which is set to quadruple in the next 7 years, sparking its evolution from niche mineral to mainstream speciality.

Benchmark Mineral Intelligence was founded as a price assessment service in 2014 with the sole aim of collecting lithium prices to a lithium specific methodology. The company has grown to add complementing services that are all focused on the lithium ion battery and electric vehicle supply chain.

It has been incredible to watch how the lithium market has adopted our prices as the industry’s reference – the go to data set for supply contract discussions, long term off-take deals, indices, and multi-million dollar investment decisions.

The main reason behind Benchmark’s evolution from just publishing a lithium price to the adoption of a lithium price in active negotiations can be summed up in one word: trust.

Trust underpins everything that we do at Benchmark as the only truly independent specialists in the lithium industry.

Benchmark’s price assessments are transparent and easy for the lithium industry to understand as they were created by analysts that have operated in lithium business for many years and understand its nuances.

Our lithium price assessment methodology is lithium specific

This is so important to understand.

Our methodology is not a generic price assessment methodology that has been put together by analysts from commodity markets and transposed onto lithium – something that is becoming more and more commonplace from the major commodity publishers.

Benchmark’s Lithium Price Assessment methodology is lithium-specific, lithium-focused, and expert.

It was designed to accurately capture the price ranges for our lithium carbonate, lithium hydroxide, and spodumene grades.

We publish 6 lithium carbonate grades with a minimum specification of 99.0% Li2CO3 purity, 4 lithium hydroxide grades with a minimum specification of 55% LiOH, and a spodumene feedstock price with a standard specification of 6% Li2O.

The prices published in Benchmark’s monthly Lithium Price Assessment are used by those active in trading lithium such as: producers of lithium carbonate, hydroxide and spodumene, cathode manufacturers, lithium ion battery producers and electric vehicle manufacturers.

This price data is also used by active players in lithium’s other markets such as grease, ceramics and glass, and aluminium lithium alloys.

Lithium Carbonate Grades Assessed each month: 

> Lithium Carbonate, FOB South America
> Lithium Carbonate, CIF North America
> Lithium Carbonate, CIF Asia
> Lithium Carbonate, CIF Europe
> Lithium Carbonate, EXW China (Battery grade)
> Lithium Carbonate, EXW China (Technical grade)

Lithium Hydroxide Grades Assessed each month: 

> Lithium Hydroxide, FOB North America
> Lithium Hydroxide, CIF Asia
> Lithium Hydroxide, CIF Europe
> Lithium Hydroxide, EXW China

Lithium Spodumene feedstock assessed each month: 

> Spodumene concentrate, FOB Australia

Due to demand from the industry, Benchmark then started to publish Global Weighted Lithium Average prices for lithium carbonate and lithium hydroxide.

Each month we take all the specific prices outlined above and calculate a global average price, weighted on the volumes traded in the market.

This is the most accurate way to understand the global prevailing price for lithium.
This Global Weighted Lithium Average price works for those customers that want to simplify long term lithium contracts.

The final addition to our monthly price analysis was for a wider audience that wanted to understand general price movements across the whole industry and every grade.

As a result we created the Benchmark Lithium Price Index which does just that.

Benchmark’s Online Lithium Price Portal – Get access today – email info@benchmarkminerals.com

Who else publishes our lithium prices?

Some grades from Benchmark’s Lithium Price Assessments are also published by:
Bloomberg, Thomson Reuters , and one other mainstream provider.

We carefully select our partners to republish our lithium price assessments to access a wider, non-core audience.

Only Benchmark’s subscribers receive full access to all lithium prices and analysis. You can subscribe by contacting us here: info@benchmarkminerals.com

Trust – the fall of the traditional PRA

Benchmark Mineral Intelligence has been known in the lithium industry since its inception in 2014. However, its team have been independently analysing the lithium space for much longer, including myself since 2006.

To be known in the lithium industry, understand the lithium industry, and be able to identify when a piece of intelligence is sound or misleading is absolutely critical to how we collect lithium prices.

The lithium industry trusts Benchmark and we know who to trust in the lithium supply chain.

Trust has been the major issue for the biggest commodity publishers – also known as Price Reporting Agencies or PRAs – over the last ten years.

Since the mid-1980s, price publishers grew significantly in size in line with the growth in materials such as oil, coal, iron ore, and copper.

Yet a lack of evolution, scrutiny, expertise and detail in collecting this commodity price data resulted in regulators knocking at the door, and even the raiding of offices by the UK’s Serious Fraud Office as part of a European Commission investigation in 2014.

The biggest publishing houses were under the most scrutiny in their history and the trust, that is so key to price adoption, was sapped out of the industry.

These three articles are a must read to understand the path and plight of large-scale PRAs.

1. Commodities

Fixing the Fix – The Economist, February 10 2014
The European Union wants to change how commodity benchmarks are set

2. Libor

Understanding the Libor Scandal – Council on Foreign Relations, 12 October 2016

The manipulation of interbank lending rates by a host of global financial institutions could have significant repercussions for financial markets, consumer loans, and regulatory policy.

3. Credit Ratings Agencies

Moody’s, S&P and other credit rating agencies deserve a failing grade – The Guardian, 23 February 2013

The traditional credit rating business is broken. Perhaps there is a way to use open source models to fix it

Remember This Moment When the Next Financial Crisis Strikes – The New Republic, 28 August 2014
The SEC could have fixed our broken rating agencies. It whiffed

There is an apt quote from The Economist article that summaries how all commodity prices are collected:

They rely at best on a seasoned reporter’s ability to interpret what his sources tell him about bids, offers and deals, and at worst on a gullible greenhorn’s guesswork.

It is important not to lose sight of this by marketing documents or Youtube videos:

All price assessments – whether this is for oil or lithium – are more of an art than a science and they 100% rely on the knowledge of the company and the analyst collecting the data.

With lithium, the bigger publishing houses are in a position that they have never been in before:

  • They have no brand presence in the lithium industry and,
  • Have no prior knowledge of the lithium industry

This is another major reason why Benchmark Mineral Intelligence’s assessments has been adopted as the lithium reference price.

What is IOSCO and does lithium need it?

You may have heard references to something called IOSCO.

It stands for the International Organization for Securities Commissions. This organisation developed a set of principles (Principles for Financial Benchmarks – you can download here) after the global financial crisis.

They were designed for the financial industry to bring some order to a chaotic situation and atone for sins of the past.

Soon after their launch, commodity publishers adopted the same set of principles for similar reasons after failed attempts to regulate themselves and make their own principles.

It was especially important to adopt a new check point after the scrutiny of the price fixing accusations outlined by The Economist article above.

IOSCO’s principles are designed by the financial industry, for the financial industry, and have been adopted by commodities.

The lithium industry has never requested Benchmark’s prices to be to be IOSCO certified and very few in the supply chain even know what IOSCO is.

However, the growth in the lithium market means financial instruments will soon be a part of the buying and selling process. Therefore, Benchmark’s Lithium Price Assessments – which have been based on a rigorous, lithium specific process since its inception – will become (officially) IOSCO compliant, most probably by the end of 2018.

Benchmark’s lithium prices will be the first ever IOSCO certified lithium prices.

Despite claims by other price providers, it is not the lithium price that is IOSCO compliant but the company as a whole that is.

Therefore, many prices slip through the cracks, casting doubt on the rigorous nature of IOSCO suitability for commodities, especially the 21st Century specialties like lithium.

Spodumene ore in Western Australia – on one of Benchmark’s regular lithium site visits

Benchmark on lithium duty in China

How do we collect lithium prices? First Hand.

The lithium supply chain gains further confidence in Benchmark’s price assessments owing to the fact that we created a methodology from scratch for the lithium space.

The data we rely on is collected first hand.

This is not based on historical trade statistics, gathering together some numbers from presentations or social media (yes, this is actually one method adopted by some providers), or making a handful of supply side calls each week or month.

Our prices are a result of an intensive monthly process whereby we speak with many supply and demand side players in the lithium space.

We collect the data from telephone calls, electronic communications and, most critically, face to face meetings – this is access that other publishers do not have.

At the end of each month this data – both quantitative (lithium prices and volumes) and qualitative –  is gathered and assessed to produce Benchmark’s Lithium Price Assessments.

The methodology is transparent, can be downloaded here, and we are always available for feedback whether by direct email (info@benchmarkminerals.com) or in person on our World Tour 2018 or Cathode 2018 Conferences.

We give over 50 presentations each year around the world and take the time to listen to the market and any suggestions, concerns or feedback.

Benchmark is also on hand to help the supply chain devise new contracts and methods to further utilise its Lithium Price Assessments.

You can download the methodology here.

Benchmark in the Atacama, Chile

Team Benchmark

The final reason why Benchmark has become the lithium industry’s reference price is because of the people behind the process.

The growth in the Benchmark Team over the last 4 years has been lithium centric.

We have employed a variety of trustworthy, excellent team members with experience across the board in lithium, specialist commodities, financial markets and publishing.

Our team has worked for many major companies in the commodities and finance industry including: Metal Bulletin / Industrial Minerals, Wood Mackenzie, CRU, Rio Tinto, BGC Partners, and Thomson Reuters.

For more information you can contact Andrew Miller at Head of Price Assessments at amiller@benchmarkminerals.com 

To subscribe or for a personal demo Benchmark’s Lithium Price Assessment you can contact us at info@benchmarkminerals.com with the subject line “Lithium Prices”. 

Benchmark on lithium duty in Jujuy province, Argentina

Benchmark on lithium duty in Brazil

 

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