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The HC Commodities Podcast
Lithium’s Hard Year with Caspar Rawles
00:35:35
In 2024 the Lithium market saw huge price drops related to oversupply, a slowing EV adoption rate globally, as well as macroeconomic headwinds. Is this a pause or a more structural challenge? What is the long-term demand picture? How does geopolitics fit within that? Does technological change threaten the outlook? And in such a volatile market, why is risk management essential? Our guest is Caspar Rawles, Chief Operating Officer at Benchmark, the Independent Price Reporting Agency for Critical Minerals, including Lithium, which will soon be launching three Lithium futures contracts with the Intercontinental Exchange, ICE. What are those contracts and what do they mean for the sector?
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- [00:00]
Caspar Rawls
Foreign.
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Paul Chapman
Welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we return to lithium market. 2024 saw price drops related to oversupply and a slowing EV adoption globally as well as macroeconomic headwinds. But what's the story behind it? Is this a pause? What is the long term outlook demand picture? How does geopolitics fit in that? And how does technological change fit within that? And in such a volatile market, why is risk management essential? Our guest is Caspar Rawls, chief operating officer at Benchmark, the independent price reporting agency for critical minerals, including lithium, who've recently launched three lithium futures contracts with the Intercontinental Exchange ice. What are those contracts and what do they mean for the industry? As always, you can really support the show by leaving a positive review on the platform you're listening on. As always, I hope you enjoy the episode. Casper, welcome back to the show.
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Caspar Rawls
Hi Paul. Thanks. Glad to be back again.
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Paul Chapman
Yeah, it feels like quite some time since we've done a lithium podcast. I think people can go check back through the feed. Obviously you and Simon have been on and did some early podcasts around lithium and we've done a one or two sort of supply chain updates over the years. But I guess what we're doing today is updating on the last year or so, where we stand in terms of markets, where we stand in terms of prices and supply and demand. Also what's occurring on the technology piece and, you know, what the future might hold. And then obviously talking about benchmarks, contracts on ice, why, what are they? Why and what does that mean? And congratulations to you guys for that. But let's, you know, let's, I guess start on and I know the answer to this because obviously the lithium stocks I've been diligently buying over the years and the expectations of great reward have told me Otherwise, is obviously 2024 was a bit of a challenging year for lithium prices. Can you just give us an overview on what happened, roughly speaking, in terms of lithium carbonate, lithium hydroxide, you know, what happened last year. And also can you give us a quick reminder on the difference between those two?
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Caspar Rawls
So maybe I'll start with the difference. I'll do it backwards. So I'll start with the difference between the two and then go through kind of what happened over the course of 2024 in pricing where we are today. So quite simply, hydroxide and carbonate are two different types of lithium chemical. I guess what's important here is kind of their application. So what you typically see is that lithium carbonate is used in LFP. So lithium ion phosphate battery chemistries that go into EVs and energy storage, it's a lower energy density form of battery chemistry. But it's grown in adoption, particularly in China, and is growing globally as well. At one stage it was kind of, you know, I can remember back in, I think around 2018 it was kind of thought of as a kind of dead chemistry that people weren't going to use. But it's really come back with a vengeance and is being widely adopted now. Lithium hydroxide is on the other hand, I mean again is obviously used in lithium ion batteries, but is used in the kind of higher energy density nickel based chemistries that are more prevalent outside of China. So, you know, have a larger market share in western markets, Europe, North America and pretty much everywhere outside of China, to be honest. So it's yeah, just two different types of chemistry. I guess one of the key things as well, when you think about it from a financial markets or an investment perspective is one of the challenges with hydroxide is it has a shelf life, whereas with lithium carbonate you don't really have that to quite the same degree. And which has caused problems in the supply chain in the past and seen some companies look to kind of use more carbonate than hydroxide to get away from that problem.
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Paul Chapman
We had John Passalaqua on talking about LFPs and it's kind of fascinating episode and obviously kind of the, as you say, a bit of a resurgence gone from a bit of a dead chemistry to one actually where when you boil it down to usability, and it has many attributes that obviously not least cost that actually for many EV applications they're just fine. I guess the other thing just to note there as well as I understand it just from previous episodes, is that you can take carbonate, add more energy, more processing and turn it into hydroxide that has a shelf life. Obviously that's a significant cost to it. You get a higher energy density. But then you can also, I guess make hydroxide via spodumene as well. So you've kind of got these three types. Spodumene being the ore. Yeah, exactly.
- [04:46]
Caspar Rawls
So that kind of brings us on nicely to pricing, I guess. And you know, in terms of the two, what you saw historically, let's say certainly through the kind of 2000 teens and early even so in the early 2000s that hydroxide was typically a premium product to carbonate because the vast Majority of material. In fact, you know, all material in the past was that was the route. So you would produce lithium carbonate. It would then be converted to hydroxide. So you therefore had an additional cost of, broadly speaking, fifteen hundred dollars a tonne. That would be broadly where the premium sat, you know, outside of like periods of rare market demand or whatever. That was kind of how it sat. But as you saw more and more of these newer lithium conversion plants come on, a number of them now, particularly in China, can convert from spodumene directly to hydroxide. So you don't have that carbonate step. And so that has yet seen that relationship in many cases invert. So for, I'd say the majority of the last 12 to 18 months, most of the time carbonate was at a premium to hydroxide. So, you know, reverse to historic norms. Right now, there's really not a huge amount of difference between the two. In terms of price. You're looking at somewhere between eight and $8,500 a ton. So, yeah, going into pricing in a bit more detail, if we think back to the start of 2024, prices were higher than they are now, broadly speaking, double what they are today. So kind of high to mid teens throughout the first quarter of 2024. But throughout that year, what we saw was a period of oversupply. So that was really based on the fact that even though these markets are growing very quickly, so I think last year, broadly speaking, EV demand grew by about 30%. The market was expecting more growth, perhaps unrealistic, you may say, demand growth expectations. And you saw kind of moderate oversupply of lithium into the market. And you saw prices fall fairly consistently throughout the year, particularly from the start of Q1, you saw prices go from, as I say, kind of high mid teens down to probably around the 12 to $10,000 a tonne mark for both hydroxide and carbonate. And we've seen kind of more bearish sentiment at the start of this year, seeing prices kind of move, as I just said, to kind of around eight and a half thousand dol time where we are currently now. It's not all gloom and doom, you know, year over year demand growth in many EV markets. I think so far this year, year to date is again around 30%. In some markets, maybe around 35%. And that again is, is, I would argue, a very good rate of rate of growth. But the market remains oversupplied. So that's why we've seen prices fall, you know, of course, as well, just to add to that kind of global macroeconomic headwinds economic problems in China, trade wars and tariffs, war in Europe, various different things going on which have caused more economic uncertainty, all haven't helped. The global picture, the macro picture, which obviously plays into decision making around investing in things that are expensive like cars and electric vehicles.
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Paul Chapman
Yeah, I want to, come on, I want to sort of segment this out and do a bit of a deeper dive. So staying on kind of that supply and demand and risk of getting slapped by my economics professor, you know, basically which one was more important? But let's, you know, on that supply side, why was there oversupply? And I know that's a tough question. Was it essentially that it turned out that there was, you know, more lithium out there than expected? Was this just, you know, a price reaction to that 20,000 and the good news story, lots of investment went into it, you know, or is it actually the fact that you do have these changing chemistries around actually, you know, carbonate being sufficient for the LFP batteries. Can you just, I guess help us understand that supply side in the response and then we'll move on to the demand side and perhaps lower EV sales and that piece.
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Caspar Rawls
Yeah, so a combination of things. So if we go back to kind of 2022 and 2023, we saw record high prices. I think the high we had was about $82,000 a ton. So like 10x where we are today. And when you have that kind of high price environment, you see supply come out from all, all sorts of places and become economic from all sorts of places. So in part that helped accelerate some of the, the new supply coming into the market. We also saw some investments or let's say global regions start, or we've seen, let's say over the last kind of year or two, supply from more global regions. So you saw increasing supply from domestic resources in China. These are low grade, high cost resources. But in that higher price environment you were able to make those economic. You've seen supply growth from the likes of Brazil, Zimbabwe, Namibia, various other regions which have all added to the supply picture. And then that coupled with which we continue to see very strong growth in EV sales in that kind of post pandemic boom. But I think there was expectations that that would continue at the rate that it did, which were perhaps unrealistic. And we still see, as I, you know, said, very strong growth rates. But supply was, you know, we were over capacity for how quickly the market could grow. So it's a combination of high prices incentivizing, incentivizing new resources and also, you know, and we can get into the demand side, but kind of perhaps demand not living up to expectations.
- [10:03]
HC Group Announcer
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- [10:41]
Paul Chapman
Side because this weaves into another kind of prominent narrative of the last couple of years where in that sort of the giddy days of $80,000 per ton, the narrative was essentially in this sort of trifecta of cost, the economics, but also sustainability, energy transition attributes and then security. It's that sustainability piece that was driving the narrative. Right. You know, there's going to be a vast rapid adoption of EVs, lots of policy support for that net zero, all that piece. Today the, the story is very much around security of supply and has been really ultimately since Russia's invasion of Ukraine and growing tensions with China over Taiwan, so forth where actually that, that's a challenge for traditional market based economics in the sense that you do have countries looking for alternative sources of supply, friend shoring, opening up mines that might not necessarily get the investment if they running purely on the economics. And that all does mean that you get that proliferation of new sources that aren't necessarily very economical. But in a market based economy that just tanks the price. That's part of the challenge. There is its own positive story about this need for security in these supply chains. Not least awareness raised by Benchmark itself and Simon Malls. But that's a challenge, isn't it? I mean, how significant is the fact that you see this rush to develop new resources which aren't tied to China in more friendly locations?
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Caspar Rawls
Yeah, it's a good point. I mean from our perspective, I think security of supply has always been a key focus and that's always been something that we been very, you know, very conscious of throughout, you know, the, the last 10 years. But yeah, I know what you're saying. I understand what you're saying that you have supply coming from different areas and perhaps, you know, in a, unless, say in a perfect world where everyone was a happy trading partner, maybe that supply wouldn't have come online. But it also brings about other challenges because it's, you know, it's not just a simple kind of mass Balance equation of we need this much lithium, this is what's being produced, it's who can buy from who and where's it going to go? What's going to be released into the market? Is there going to be strategic stockpiles of materials? What relationships are going to happen? I think it really complicates the picture of exactly what's available to market. So I don't envy the job of the automakers are trying to work out who they can buy from and how much they've got to sell. But the kind of insuring and the procurement that's happening across various different countries is also kind of muddying the picture. And it does make it a kind of a more opaque market. I guess a market that's already opaque is getting perhaps more opaque.
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Paul Chapman
Yeah. And it comes up to our sort of end point about the need to be able to hedge and manage the risks in this. But two more questions on the supply side. One, I guess relatively simple. Where are we at on direct lithium extraction and how much has the development of that? A sort of much more. How much has that impacted sort of the, the, the cost of production and supply, if anything, at this stage?
- [13:54]
Caspar Rawls
Direct lithium extraction has been something that's been discussed in the market for a very long time. To be completely honest, it's not happening in a widespread commercial scale anywhere at the moment for that. I mean, maybe it's worth just noting what, why it's important. Historically, lithium brines, the way that they've been processed is initially through evaporation ponds, so huge ponds that the br, brine from the, from the high altitude salaz in South America is pumped into you evaporate the water away effectively and enrich the brine which can then be processed via traditional processing methods. Direct lithium extraction is taking the brine in real time and pulling the lithium out and pumping the brine back down the ground into the ground and keeping the lithium from the aquifer. So yeah, it's still the challenge with daily is that it's not a technology that you just crack and it works everywhere. You need to develop it for each individual brine and the brines can change considerably over very short distances. So if you perfect your process in one, one place, you go 50 kilometers up the road and it may work, but it probably won't work in that different location.
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Paul Chapman
So, so, so investors beware. And it's not some, some panacea then basically sort of.
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Caspar Rawls
I wouldn't say it's necessarily a panacea, but it's certainly a really important part of being able to meet the future demand growth. So it's not like a, yeah, it's not going to solve the problem in one fail swoop, but it is an important part of the future picture the, of the lithium supply roadmap. But we're going to need lots of other technologies to be able to meet the types of volumes that are going to be needed for kind of widespread adoption of electric vehicles and energy storage.
- [15:29]
Paul Chapman
Yeah, and we're going to talk about that demand piece because I mean there is a certain amount of ultimately this is as all things energy transition. This is more about when, not, not if. And it's just the timelines and you know, longitudinally these bets are still pretty solid, but just staying on that supply side. Obviously there has been some significant mergers and acquisitions. You know, Rio Tinto's acquisition of Arcadium, etc, you know, what have we seen in terms of M and A activity with, with the commensurate price fall and are we seeing kind of what's, what's happening with production? Are we seeing cuts and that, you know, response there or is it still sort of, you know, pushing on?
- [16:07]
Caspar Rawls
I mean, it's still relatively active. I mean, if you, you know, if you think about it, this is actually quite a good time if you're looking to invest, if you're looking to acquire a company, as you say, Rio Tinto and Arcadium being the largest one. You had PLS or formerly Pilbara Minerals, Latin Resources, there was a, Gina Reinhardt's company. There was a whole number of different investments. Of course, Equinor invested in standard lithium. I think that was in 2024. So yeah, it's continuing to happen and I think there's more to be done. So I think the space, as you say, this is one of the few markets where you kind of have certainty that demand is going to grow in a very significant way. There may be some arguments about exactly when it's going to happen, but it is happening. We're seeing more and more energy companies come into the space. Exxon announced their lithium project, I think last year as well. So yeah, you're seeing more and more capital flow into these markets despite arguably it becoming on paper right now. If you look at the picture of the, the price of lithium, it's not that appealing. But I think it kind of shows that there is faith that this is coming and people are making some quite shrewd investments at this time to really capitalize when the market tightness does come back. And it will come back and we see higher pricing.
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Paul Chapman
Yeah, yeah. I actually met the lithium guy at Exxon randomly a couple of years ago and was surprised to learn that obviously that's a focus of theirs and it makes sense when you think about the brines and some of the existing technology. But I think it also says quite a bit that Exxon are, you know, are doing that, that aside. Okay, so let's move to the demand piece and I guess just staying in the short term, you know, was it just simply this story that was slow down or EV demand just not meeting expectations and then can you dive into a little bit of is there a technology piece there, etc. Etc.
- [17:56]
Caspar Rawls
Yeah, I think there, as kind of alluded to earlier, there were some perhaps unrealistic expectations in the continued growth in the in demand in the market. But nonetheless, as I say, you know, if you're talking about markets growing kind of 30%, 35% year over year in any other commodity market, I think people would be very happy. But you know, there was so much interest in this space following the, let's call it the green recovery after the pandemic. There was a lot of excitement and perhaps some of that excitement was premature. And you know, we actually saw a very similar kind of cycle to this in that's kind of 201617 price rally in Lithium where people kind of got very excited, perhaps a little bit too early. And then we saw the wave of demand come later as the market could catch up. So I think the market was hit with a number of different things. It was kind of slightly lower than expected demand growth. It was also the kind of post pandemic inflation, interest rate economic challenges that a lot of global regions have seen, which has hampered kind of large purchases in the EV world. You know, well known problems with the economy in China, the war in Ukraine obviously didn't help kind of certainty and people's willingness to invest in various things with so much uncertainty around. And we're kind of continuing to see it today. Right. So with the new administration in the US and let's say a very fluid policy environment in that administration or increased.
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Paul Chapman
Taxes on you now. Well, the new bill requires EV owners to pay a surcharge. Right. Rather than any kind of discounts and incentives and so forth. So yeah, we can expect it to slow further.
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Caspar Rawls
What's happening is not necessarily negative for the market, but the uncertainty is difficult, particularly in the investment environment when you don't really know exactly what policies are going to be in place in the next, not even year, the next six months or three months. So yeah, that's been one of the challenges, I guess more recently. So all of those things together really created. Yeah, lower than expected demand. And the other thing to add as well, the types of oversupply that we're talking about in the market are kind of, I mean this year we're looking at roughly kind of 5% oversupply in the market. So it's meaningful but not huge. The one thing you can say of course though is that with all of this is that the cure for low prices and oversupply is low prices. And we are seeing those expansions or new investments that were expected, delayed or canceled. And that's continuing to play into like a moving picture in terms of exactly when the market's going to swing back into shortage.
- [20:32]
Paul Chapman
What about the energy storage side? You know, our sister firm Hyperion Search, which just to plug them, operates in new energy technologies and a lot of their work is around utility scale, grid wide energy storage. How much of the market does that comprise in terms of lithium consumption? Because that seems to be still roaring in demand as you are putting more renewables onto grids, particularly in Europe, but also for data centers, all this kind of stuff. It seems like that's a positive story intent even if EVs have somewhat underperformed expectation.
- [21:10]
Caspar Rawls
Yeah, absolutely. I mean we're seeing really strong growth rates in essential. Yeah. In various global regions actually. Obviously China generally leads away most things in these markets, but yeah, it continues to be the kind of bright star in terms of demand growth, but it's still much smaller than the overall EV market in terms of cell demand. So as a split, EV is about 1.2 terawatt hours of total cell demand in an annual year and ESS is about 0.3. So you're looking at about roughly 25% of EV demand is what goes into ESS, broadly speaking. In the types of batteries that are used. Lithium volumes are broadly similar. It's like you can use a kind of similarity there. So yeah, so in total, ESS, broadly speaking is about 25% of the demand of the EV market for lithium.
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Paul Chapman
It gets a bit harder just, I mean, let's just talk long range for a little bit. I think we've already sort of stated that both feel quite strongly about where this is ultimately heading. And there's a really strong story there for demand, whether it is ESS or whether it's EVs. And obviously EVs being the real driver. But you know, it's not. It's actually the electrification of everything you know, and everything having some kind of lithium or everything having some kind of battery or energy storage within it, there's the source is kind of uncertainty on that trajectory, you know, the timeline effectively it takes to get to that state and what that means for lithium. There's obviously that kind of the geopolitical uncertainty around policy support. And really that's sort of an accelerator or decelerator. We're seeing somewhat of a bifurcation between the US in the current administration and Europe. The other key one is really, I guess, well, there's many. But another one is going to be technology. When we think about the articles all the time about solid state batches, batteries are going to change the world, all this kind of stuff, you know, where does lithium fit in that technological story? How certain are we that lithium will continue to play a role roughly equivalent to today?
- [23:12]
Caspar Rawls
That's a good question. So, I mean, I think we can kind of safely say that lithium is going to be at a very important part of the story for as long as foreseeable. So, you know, today, the massive investments that have gone into kind of the current lithium ion, those are going to need to be depreciated. And the other thing all of those investments have bought have meant that lithium ion batteries are really cheap. Now. You're looking at prices $50 a kilowatt hour, $60 a kilowatt hour, which were kind of unthinkable just a few years back. And so the next technology has a really kind of high hurdle to reach if it's going to be a step change that's worth moving over. And that could be solid state. So the likelihood is with solid state is it will continue to use, at least in the initial, certainly kind of the traditional cathode that we use today. And lithium, so nickel, cobalt, lithium, those minerals will be continued to use in that, in that battery or that technology type. It is, you know, still, effectively still a lithium ion battery. It's just different. You know, the materials used are going to be different in the battery itself. So I think it's fair to say that, you know, we anticipate lithium to continue to be part of the energy transition story for, I'm going to say forever, because I don't know what the future holds in the very long term, but any kind of reasonable investment horizon, you can, you can be fairly sure Lithium will be there.
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Paul Chapman
Yeah, yeah. Lithium seems the safe bet compared to some of the other bits of the chemistry. Right. At least in everything I read. Second one is obviously you also have had just turning to Europe despite significant policy support. Actually we've seen obviously northvolt, britvault, I mean a lot of, you know, either bankrupt or in serious trouble, serious debt. That seems to me like that would drag on the market for quite some time as well. Can you just help us understand a little bit the impact there and do we this dream of having sort of actually domestic battery production is under threat purely by the economics?
- [25:10]
Caspar Rawls
Yes, again, yes. It's one of the real challenges of kind of cell production I guess more than anything, which is that manufacturing these cells is extremely challenging. You have very high volume manufacturing with very low tolerance for imperfections and you know, very costly imperfections if they happen. And that's one of the challenges that I think all battery companies face, but particularly the startups like the likes of northvolt. So just managing working capital, if you, as Northvolt did, got through all of the various different challenges of raising the capital to build out the plant and then actually manufacturing these things is really challenging. So the other thing that you need to consider as well is the competition and the competition are the likes of Catl, LG Energy Solution, Samsung, sdi, byd, these various companies which I think just thinking about Catl, who represents about 50% market share of EV batteries in China, the last I heard they had an R and D army of about 20,000 people. So you're up against these very mature kind of in terms of their customers and their production. These companies have done it many times. So you need to compete on cost and technology with them. So there's lots of, lots of challenges in bringing cell production online. It's very costly. I think particularly in Europe there is some trepidation about making those very large scale investments without kind of certainty around them, which is perhaps not the same way the Chinese invest or Chinese companies. The other thing as well is as you, as you say, is that there would have been some people that got their fingers burnt in that North Vault investment and it does leave a bad taste and that may make it more challenging for companies that are coming through now. So yeah, it's certainly a difficult thing. Doesn't mean it's impossible. I'm sure there are companies that will achieve it in the future. But I think we shouldn't underestimate the difficulty in manufacturing high quality lithium ion batteries and the time it takes to actually get from building your factory to steady state production.
- [27:12]
David Hunt
Hello, I'm David Hunt, founder and managing director at Hyperion Search. Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and the mobility. The energy transition and the talent that delivers it has been our passion since the day one. To find out more, visit hyperionsearch.com or listen to my Leaders in Clean Tech podcast, available on all platforms.
- [27:45]
Paul Chapman
And obviously, you know, this is a commodities focused podcast and you know, one of the first episodes we did, or you know, the first 10 episode was, one of them was with Simon, you know, your CEO or chairman now talking about will lithium become traded? But ultimately the point being that managing that risk in the supply chain is key to be able to unlock some of this investment and manage what it continues to be quite a volatile space as we've just been describing. And that's I guess where futures contracts come in. You guys have just teamed up with the Intercontinental Exchange, traditionally, but more of an energy focused exchange, which I think says something in and of itself. But can you just, before we sort of dig into exactly what those contracts are, the three contracts, can you just give us some sense on kind of what the need is and the demand out there to be able to risk manage in this environment?
- [28:34]
Caspar Rawls
Yeah, absolutely. So, yeah, one of the big challenges that the industry has faced, it was basically the companies that are carrying the price risk has been the automaker. So the way that the supply chain functions is kind of cost path, cost pass through, sorry, where you're using prices such as benchmark prices to index the raw materials passing through the supply chain. And the person that's weighing all the risk at the end of the supply chain is generally speaking the automaker. So that means, you know, they go out to market, they have a product to sell, they sell a product for the price, and then if the lithium, if lithium goes to $80,000 a ton, they have to wear that risk. So there is a need out there, as I say, very much focused around the downstream. Equally traditionally in commodities as well. Some mining companies like to manage some of their price exposure to give them some more budget certainty throughout the year. So these markets are in desperate need of kind of liquid hedging tools which so far haven't really materialized in the market. So yeah, there's a, you know, and as the market continues to grow and the exposure to these, these raw materials grows, for the supply chain, that need increases constantly.
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Paul Chapman
Okay, well, it would be great to understand exactly sort of what the, what you've done with ice and what it means.
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Caspar Rawls
Yeah, absolutely. No problem. So, yeah, so we will be launching a series of futures contracts with ice. We have four contracts launching, so three lithium, which are lithium carbonate, lithium hydroxide, and spodumene. Spodumene is the hard rock feedstock material that comes primarily from Australia, but it's coming from other regions as well. And also a cobalt hydroxide contract. Cobalt hydroxide is the feedstock which is typically produced in the DRC from copper operations and is used to be converted to cobalt sulfate. These are cash settled contracts. So they'll be settling against the average of benchmark price publications for those different, different products or those different grades over the course of the settlement month. So that what that means effectively is that those companies who have that price exposure to benchmark in their contracts, so whether that's for lithium or for cobalt, they can then hedge some of their exposure using the contracts in the market. And also, you know, you also see, you know, a number of different financial institutions either using the contract speculatively. Also when they're managing risk for some of their customers as well, there are.
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Paul Chapman
One or two other competing contracts out there. How are these different and I guess, what are the expectations in volume and so forth?
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Caspar Rawls
Yeah, good question. I mean, I think the, I guess the key differentiator is benchmark pricing. So benchmark was set up with very much a focus on transaction prices within the market. So we work very hard. We have the largest team of kind of analysts looking at these markets and collecting data to reflect the prevailing transactive price in the market. And what we've seen is that the market has responded to that. So we've seen very large uptake by various supply chain players to use our pricing in their contracts because it mirrors more closely than kind of legacy media publishers of prices. Our prices mirror more closely what's on their invoices in the real world. So people using those prices will, and they want to hedge their risk, they will use that in ice. So in terms of how liquid these futures could become or kind of hedging volumes, I mean, you know, it's difficult to say exactly, you know, how quickly these will be adopted. But we've done some analysis on this and I would say this is kind of relatively conservatively looking at these numbers. But by the mid-2030s, you could see kind of around 6 to 7 million tons of lithium being hedged through these contracts. Now, as you say, there's a number of different contracts out there. We, in our analysis have excluded volumes that we think that will go through Chinese domestic exchange, which the kind of feedback we've had from the market is largely speaking kind of Western companies not comfortable necessarily with using that exchange. So maybe not big in terms of oil or other kind of larger commodity markets like copper, but for these markets, actually pretty significant volumes.
- [32:39]
Paul Chapman
Yeah. And again, it's its own virtuous cycle in drawing in some of these other traders in energy or whatever it might be that can start understanding the market through these contracts in a more familiar, more risk managed way than previously. Before we let you go, Casper, just a couple of other bits just to touch on. Obviously, you know, you guys produce a number of indexes that always sort of interesting to look at. Where are we at in terms of, you know, we didn't touch on the technology piece, but on the recycling side you guys have a black mass index, which sounds terrible but you know, is, you know, what are we seeing on that side is, are we seeing a rapid uptake there? Any technological developments, you know, more broadly what, you know, are the, what's happening there?
- [33:24]
Caspar Rawls
Yeah, black mass is a really interesting market. It's one of the, kind of, one of the markets where we see real differentiation regionally in the way things are priced and the way things are traded. The other thing that plays into black mass as well is whether it's categorized as a waste in some regions. You know, technically, you know, black mass is coming from waste batteries, but it's very, very valuable. So we don't really see it as waste. But the challenge that market is facing right now in terms of kind of development and investment and new resources is low prices. So obviously that headroom for profitability in terms of processing raw materials when prices are this low shrinks. And that makes it kind of a bit more challenging. But having said that, despite that kind of challenge the market's facing, it's one of the markets where we see the most interest. So have a huge amount of interest in our, in our price assessment, as you say, in terms of indexing and using the data for, for contracts. But also kind of broadly speaking, you know, there is a, you know, a realization by many different parts of the supply chain that this is something that companies are going to need to do and they actually want to be involved in. So if you are in Europe where, let's face it, it's very unlikely that we're going to be able to produce regionally the materials that we're going to need for these batteries. So you're dependent on imports. You want to make sure that you've got the domestic capacity to process that material. So it remains an area of interest. But not without its challenges in the current price environment.
- [34:48]
Paul Chapman
And I could go, I want to talk about rare earths as well, but we've got a couple of episodes coming up on that. But. Well, Casper, by the time listeners hear this, you and I will have already met each other at Giga 25, your event in D.C. which I'm excited to go to. And, you know, congratulations on the new contracts. And, you know, look forward to to having you guys back on update us on various various aspects of these metals and critical minerals in the energy transition. So, as always, thanks, Casper, for your time.
- [35:15]
Caspar Rawls
Thanks, Paul. It's a pleasure. Thank you.
- [35:18]
Paul Chapman
Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup.global.