On June 9, a fire broke out at Chemical Grade Plant 3, or CGP3, at the Greenbushes lithium operation. The fire was quickly extinguished, no injuries were reported, and CGP1 and CGP2 continued to operate as normal. The following day, IGO confirmed that its FY2026 spodumene concentrate production guidance of 1.375–1.425 million tonnes remained unchanged. Chemical Grade Plant 4, or CGP4, is scheduled to commence construction in 2027. Viewed in isolation, this was a well-contained operational incident. However, the location of the fire deserves closer attention. CGP3 is not part of Greenbushes’ existing production base. It represents incremental supply currently ramping up at the far-left end of the global lithium cost curve. The project involved approximately A$880 million of investment and is designed to add around 500,000 tonnes per year of spodumene concentrate capacity. First ore was fed into the plant in December 2025, and the facility had originally been expected to reach nameplate capacity around mid-2026. The damage assessment is still under way. Neither the repair cost nor the recovery timeline has been quantified. The fact that production guidance remains unchanged should therefore be understood as an initial assessment rather than a definitive conclusion. The key question is not whether IGO has immediately revised its annual guidance. It is whether the CGP3 ramp-up schedule will be delayed. Should the market be concerned when an incremental production line at the world’s lowest-cost lithium mine experiences an operational disruption? To answer this question, it is useful to examine the role of Australian lithium mines in the broader lithium pricing mechanism. Note on the CGP3 ramp-up timeline: At IGO’s FY2026 second-quarter results briefing in late January 2026, management stated that CGP3 had received first ore in December 2025 and would require approximately five months to ramp up to nameplate capacity. Some English-language transcripts recorded management as referring to completion “by the end of the calendar year.” However, based on the timing of first ore feed, a five-month ramp-up period would imply completion around mid-2026, before the end of Australia’s FY2026 financial year. This is also consistent with the company’s previous guidance. The transcript may therefore have intended to say “by the end of the financial year.” This article adopts the mid-2026 ramp-up assumption. The timing is relevant because the June 9 fire occurred only weeks before the originally expected completion of the ramp-up. The actual impact should become clearer in IGO’s fourth-quarter report, which is expected in late July. Greenbushes: A Reference Point at the Bottom of the Cost Curve Greenbushes’ most important advantage begins with ore grade. It is one of the world’s largest and highest-grade hard-rock lithium mines currently in production. Its ore grade is approximately twice the industry average. For a spodumene operation, grade directly affects processing efficiency. To produce one tonne of SC6 concentrate, Greenbushes needs to process materially less ore than a typical mine. This provides a structural advantage across mining, beneficiation, energy consumption and tailings management. Greenbushes also benefits from scale. The operation currently has several processing facilities, with combined nominal ore-processing capacity of around 6.5 million tonnes per year and spodumene concentrate capacity of up to approximately 1.5 million tonnes per year. Once CGP3 completes its ramp-up, the mine will add a further 500,000 tonnes per year of concentrate capacity. With the mine life extended to 2045, Greenbushes combines low costs with long-term supply capacity. This explains the mine’s resilience during the lithium price downturn. During 2024 and 2025, lithium prices declined sharply. A number of higher-cost Australian mines and Chinese lepidolite projects faced production cuts or temporary shutdowns. Greenbushes, however, continued to maintain relatively strong profitability and moved ahead with the CGP3 expansion. Greenbushes does not represent the industry’s average cost. It represents the most competitive end of the global hard-rock lithium cost curve. For that reason, Greenbushes is better understood as a reference point for the bottom of the cycle. As lithium prices fall, higher-cost supply exits first, while low-cost assets remain in operation. The closer prices move toward the cost range of Greenbushes, the fewer marginal producers remain capable of operating normally, and the more advanced the supply-side clearing process becomes. This does not mean that lithium prices can never fall below the cost level of Greenbushes. In the short term, inventory pressure, liquidity conditions and market sentiment can push prices below the cost levels implied by the marginal supply curve. Greenbushes is not an absolute price floor. Its significance is that it provides a structural reference point for assessing how far supply-side clearing has progressed. Greenbushes: The Largest Producer, but with Limited Freely Traded Supply Although Greenbushes produces large volumes of spodumene concentrate, relatively little of that material enters the open spot market directly. The mine is operated by Talison Lithium. Talison is owned by Tianqi Lithium Energy Australia, or TLEA, and Albemarle. TLEA is in turn jointly owned by Tianqi Lithium and IGO. Greenbushes concentrate is primarily distributed through shareholder offtake arrangements and supplied into the downstream conversion systems of Tianqi, Albemarle and their respective partners. Under normal conditions, the material is not sold directly into the open market. Greenbushes therefore provides a useful example of why lithium supply should be analysed through several different layers: Resources → Design capacity → Actual production → Saleable volume → Freely traded spot volume Greenbushes ranks among the world’s largest producers by actual output. However, because most of its concentrate is locked into shareholder offtake arrangements, the amount available for open-market trading remains relatively limited. This means Greenbushes affects lithium pricing mainly through indirect channels. First, it determines the size of the lowest-cost portion of global lithium supply and therefore plays an important role in shaping the lithium chemical cost curve. Second, its operating costs, offtake pricing mechanism and expansion schedule provide reference points for long-term contract negotiations and price assessments in the spodumene market. By contrast, short-term spot prices are often more directly influenced by marginal resources that are not fully locked into shareholder arrangements and must actively seek buyers in the market. These include certain Australian mines, African lithium resources and trader-held cargoes. This explains an apparent paradox. An additional 500,000 tonnes of Greenbushes concentrate capacity can materially change the medium-term supply-demand balance, yet its immediate impact on the spot market may be limited. Meanwhile, the shutdown or restart of a marginal mine producing only 100,000–200,000 tonnes per year can quickly influence spot quotations and market sentiment if its output is sold on a market basis. Short-term pricing is not determined solely by total production. It is also shaped by the volume of material that is freely available for negotiation and immediate transaction. The same logic applies to lithium carbonate. Price elasticity depends not only on total inventory but also on how much inventory is genuinely available for circulation. The largest producer does not necessarily exert the most direct influence over the spot market. Short-term marginal pricing is usually driven by the resources that are tradeable, negotiable and available for immediate delivery. However, shareholder offtake does not mean that Greenbushes material is completely isolated from the market. If lithium conversion plants within the Tianqi or Albemarle systems reduce operating rates, or if downstream conversion assets experience operational issues, part of the concentrate originally intended for internal consumption may re-enter the market indirectly through tolling, resale or inventory adjustments. These volumes are rarely captured in public statistics, but they can affect the actual liquidity of the spodumene market. Tracking this material requires a broader set of indicators, including shareholder conversion-plant operating rates, concentrate inventories, tolling arrangements and import flows. This type of “shadow spot supply” is harder to observe than nominal mine production, yet it can become relevant at specific points in the cycle. SC6 and Lithium Chemicals: The Direction of Price Transmission Reversed Within a Year The relationship between Australian spodumene concentrate prices and Chinese lithium chemical prices has completed a full cycle over the past year. During the first half of 2025, spodumene prices followed lithium chemical prices downward. Australian miners reduced costs materially in the first quarter but largely avoided production cuts. Mining companies remained willing to ship material, and the price of SC6 concentrate fell to around US$620 per tonne. Falling concentrate prices then placed additional pressure on lithium chemical prices, reinforcing the downward cycle. At the time, the key market question was straightforward: When would the mining sector finally reduce supply? The direction of transmission reversed in the end of third quarter. The announcement that 27 mining licences in Yichun could be cancelled, together with the suspension of the Jianxiawo mine, tightened expectations around domestic Chinese lithium supply. Lithium chemical prices moved first. SC6 prices then followed, with greater elasticity. By December, the monthly average price had recovered to around US$1,300 per tonne. Formula-based pricing mechanisms linked to lithium chemical prices allowed mining companies to capture a large share of the upside, while Chinese converters saw their processing margins squeezed. At the same time, the impairment and expansion adjustments at the Kwinana lithium hydroxide project highlighted the challenges facing Australian downstream conversion. The project has faced difficulties in cost control, production ramp-up and operational stability. TLEA’s Kwinana lithium hydroxide refinery was fully impaired in mid-2025, the second train was suspended, and IGO made clear that it would prioritize mining. These developments reinforce Australia’s role as a supplier of spodumene concentrate rather than a major lithium chemical conversion hub. As a result, the relationship between SC6 prices and Chinese lithium chemical prices is likely to remain strong. However, the speed and magnitude of transmission will continue to depend on inventories, contract formulas, shipping cycles and converter operating rates. One of the most useful indicators is the implied conversion margin between SC6 concentrate and lithium chemical spot prices. When the implied conversion margin turns negative, Chinese converters purchasing third-party concentrate are effectively losing cash on incremental production. The market then needs to rebalance through at least one of three channels: Spodumene concentrate prices decline; Lithium chemical prices rise; Converters reduce operating rates. This indicator provides a useful way to judge whether bargaining power currently sits with the mining segment or the conversion segment. Australian Mine Restarts: Lithium Prices Develop an Upper Constraint The key theme for Australian lithium mines during 2024 and 2025 was supply-side clearing. In 2026, the theme has shifted toward reactivation. As lithium prices recovered during the first half of the year and futures briefly exceeded RMB 200,000 per tonne, a series of restart decisions emerged across May and June. Project Action Timing Key Point Bald Hill, Mineral Resources Restart after approximately 18 months of suspension Restart announced in May; first concentrate expected in July Restart cost of around A$20 million Ngungaju, PLS Processing plant restart Planned for July Approximately 200,000 tonnes per year of restored output Finniss, Core Lithium Final investment decision approved; financing secured Targeting first ore in the third quarter Financing package of approximately US$205 million Kathleen Valley, Liontown Expansion under assessment Ongoing Further details pending Mt Cattlin, Rio Tinto Remains suspended Suspended since March 2025 Restart conditions remain unclear Taken together, these cases show that the true threshold for mine restart is more complex than a simple comparison between lithium prices and cash costs. Bald Hill moved from restart announcement to expected first concentrate production in around two months. The mine had remained in a production-ready care-and-maintenance state, and Mineral Resources has its own mining-services platform, allowing it to mobilize mining, crushing and haulage internally without relying heavily on external contractors. This type of asset represents the fastest-reacting segment of supply when prices recover. Finniss is a different case. The project first monetized inventories through Glencore to improve liquidity, then assembled a financing package involving convertible debt, additional borrowings and equity issuance before reaching a final investment decision. For miners with weaker balance sheets, a restart is not simply an operational decision. It is a financing event. A low-price cycle does not eliminate the resource base. It eliminates the ability to finance production. The market impact of the restart wave is already visible. Lithium carbonate futures reached a two-year high of RMB 200,500 per tonne on May 13 before retreating to around RMB 160,000–170,000 per tonne in June. One reason for the pullback is that the market has begun to price in the return of idle supply. The mechanism is straightforward: Prices rise → Idle capacity restarts → Expected supply increases → Prices come under pressure The list of suspended Australian mines, once ranked by restart economics and response time, effectively becomes an upside supply curve for lithium prices. The CGP3 fire and the restart wave represent two sides of the same market. At the low-cost end of the curve, incremental Greenbushes supply has experienced an operational disruption, creating a bullish signal. At the higher-cost end, idle assets are returning to production, creating a bearish signal. From a resource perspective, lithium prices in 2026 are searching for equilibrium between these two forces. Lithium Prices in 2026 May Become More Volatile, but One-Way Trends Could Be Shorter Once prices rise, the factor that ultimately limits the upside is the speed at which idle capacity returns to the market. Bald Hill, Finniss and Ngungaju represent a broader pool of suspended or standby assets that can respond when lithium prices move sufficiently above their cash-cost thresholds and remain there for long enough. However, restart supply is not instantaneous. From the moment a restart is announced, companies need to remobilize personnel, inspect equipment, resume mining and processing, build concentrate inventories and arrange shipments. Depending on the asset, concentrate may enter the market within two months or only after several quarters. This delay creates a window during which supply disruptions can push prices higher. The suspension of the Jianxiawo mine and the CGP3 fire at Greenbushes matter not because global lithium resources have suddenly become scarce, but because short-term freely available supply has tightened while idle capacity has not yet fully returned. Compared with the previous cycle, this risk-premium window appears to be shortening. An increasing number of mines are being placed on care and maintenance rather than permanently closed. Mining-services companies, traders and downstream customers are also becoming more involved in restart financing and offtake arrangements. Once prices move back above the relevant breakeven levels, some idle assets can return more quickly. This does not necessarily mean lithium prices will become more stable. Supply disruptions can still trigger rapid price increases. However, the duration and magnitude of one-way rallies are likely to face stronger constraints from restart expectations. Prices may become more volatile in the short term, but sustained unilateral trends could become shorter. Conclusion Australian lithium mines influence lithium prices through several distinct channels. Greenbushes provides a structural reference point at the bottom of the hard-rock lithium cost curve. However, because most of its output is absorbed through shareholder offtake arrangements, it does not directly determine short-term spot pricing. Spot-market tightness is more directly influenced by marginal saleable supply: Australian mines, African resources and trader-held inventories that are available for negotiation and immediate transaction. Once lithium prices rise, the speed at which suspended assets restart becomes the key constraint on the duration of the rally. The framework can therefore be summarized in three lines: Low-cost mines provide a structural reference point for the bottom of the cycle. Freely traded supply determines short-term spot-market tightness. The speed of mine restarts determines how long an upside cycle can last. The CGP3 fire and the restart wave sit at opposite ends of this framework. One represents a disruption to low-cost incremental supply. The other represents the return of higher-cost idle capacity. Lithium prices in 2026 will continue to seek equilibrium between these two forces. Lesley Yang Senior New Energy Analyst, SMM yangle@smm.cn

On June 9, a fire broke out at Greenbushes Chemical-Grade Beneficiation Plant 3 (CGP3). The fire was quickly extinguished with no casualties, CGP1 and CGP2 continued normal operations, and IGO confirmed the next day that its FY2026 concentrate guidance of 1.375 million to 1.425 million mt remained unchanged. CGP4 is planned to commence in 2027. Judging solely by the announcement, this was a well-handled operational incident. However, the location of the fire warrants closer attention: CGP3 is not existing capacity but incremental capacity being ramped up at the far left of the global cost curve – with a total investment of about AUD 880 million, designed to add approximately 500,000 mt/year of concentrate capacity, and which only achieved first feed in December 2025 and was originally expected to reach full production by mid-this year. The damage assessment is still ongoing, repair costs and timetable are yet to be quantified, and the so-called "guidance maintained" is based only on information from the initial stage of the incident. What merits tracking going forward is not the guidance itself, but whether the timing of reaching full production will be delayed. At the world's lowest-cost mine, a new production line has had a minor incident – should the market be concerned? Today, I aim to break down and clarify this mechanism by analyzing the role of Australian ore in the lithium price formation. Note: Clarification on the timeline for CGP3 reaching full production. At its FY26 Q2 results briefing in late January 2026, IGO stated that CGP3 achieved first feed in December 2025 and that ramp-up to nominal capacity would take approximately five months. Some English transcripts recorded management's remarks as "completing ramp-up before the end of the calendar year" (end of the calendar year). However, based on the timing of first feed, five months corresponds to mid-2026, i.e., before the end of the Australian financial year (FY26), which is consistent with the company's previously disclosed guidance of "reaching full production in mid-2026." The transcript likely mistook "end of the financial year" for "end of the calendar year." This article adopts the "mid-2026 full production" timeline. This timing implies that the June 9 CGP3 fire occurred a few weeks before the originally scheduled full production, and the actual impact will be confirmed in IGO's Q4 report (expected in late July). Greenbushes: A Benchmark at the Bottom of the Cost Curve Greenbushes' most fundamental advantage lies first in its ore grade. It is one of the world's largest and highest-grade hard-rock lithium mines in production, with raw ore grade roughly double the industry average. For spodumene mines, grade directly determines mining and processing efficiency. To produce one tonne of SC6 concentrates, Greenbushes needs to process significantly less raw ore than typical mines, giving it natural cost advantages in mining, beneficiation, energy consumption, and tailings management. Building on its high-grade ore, Greenbushes also benefits from economies of scale. The mine site now hosts multiple beneficiation plants with a combined nominal processing capacity of approximately 6.5 million mt/year, supporting a maximum lithium concentrate capacity of up to 1.5 million mt; once CGP3 has fully ramped up, it will add roughly 500,000 mt of additional concentrate capacity. With the mine life further extended to 2045, Greenbushes not only possesses low-cost advantages but also strong long-term supply capability. This is why Greenbushes has demonstrated significant resilience during the lithium price downturn. From 2024 to 2025, as lithium prices continued to pull back, many high-cost Australian mines and Chinese lepidolite projects faced pressure to suspend or cut production, yet Greenbushes maintained relatively sound profitability and continued to advance the CGP3 expansion. It represents not the industry's average cost, but the most competitive end of the global hard-rock lithium ore cost curve. Therefore, Greenbushes serves as a useful benchmark for observing the industry bottom. When lithium prices fall, high-cost capacity exits first, while low-cost capacity continues to produce. The closer prices move to Greenbushes' cost range, the fewer marginal units of capacity can sustain normal operations in the market, and the nearer supply exits are to completion. Greenbushes Has the Largest Production, but Limited Free-Float Volume Although Greenbushes has a very large production scale, relatively little of its concentrates can enter the spot market directly. Greenbushes is operated by Talison Lithium, whose shareholders include TLEA and Albemarle, with TLEA jointly held by Tianqi Lithium and IGO. The spodumene concentrates produced at the mine are primarily allocated under shareholder offtake arrangements, flowing to lithium chemical production lines within the shareholder systems of Tianqi, Albemarle, and others, and are not normally offered for direct sale to the market. Viewed through the framework of [Resources – Designed Capacity – Actual Production – Saleable Volume – Available Spot Volume], Greenbushes is a very typical case. Its actual production ranks among the world's largest, but since most of its concentrates are locked up within its shareholder system, the volume truly available for market-based transactions is relatively limited. This also means Greenbushes' influence on market prices is mostly indirect. On one hand, it defines the scale of global low-cost lithium resource supply, which has an important impact on the lithium chemical cost curve; on the other, its operating costs, offtake pricing, and expansion pace also serve as key references for long-term lithium ore contract negotiations and price assessments. By contrast, what really influences spot lithium ore prices in the short term are typically the marginal resources not fully locked up by shareholder offtake agreements and needing to find buyers on the market. These include some Australian mines, African lithium ore, and saleable cargo held by traders. Therefore, while the addition of approximately 500,000 mt of concentrate capacity at Greenbushes will alter medium and long-term supply-demand expectations, its short-term impact on the spot market may not be particularly pronounced. In contrast, the suspension or resumption of a marginal mine with an annual output of over 100,000 mt that primarily sells on the open market could rapidly influence spot quotes and market sentiment. It is well known that short-term prices are not entirely determined by total output; rather, they depend more on the volume of material freely available for trading in the market. For example, lithium carbonate's price elasticity hinges more on the current available volume in the market. The mine with the largest output does not necessarily hold the most direct pricing power in the spot market; what truly dictates short-term marginal prices are typically resources that are available, negotiable, and require immediate transaction. However, shareholder offtake does not mean such concentrates are completely isolated from the market. When smelters within the frameworks of shareholders like Tianqi and Albemarle reduce their operating rates, or when some smelting lines operate erratically, concentrates originally intended for internal consumption may indirectly enter the market through toll processing, resales, or inventory adjustments. These cargoes are usually not publicly tallied but affect the actual circulating volume in the lithium ore market. Their tracking requires assessment by combining shareholder smelter operating rates, concentrate inventory, toll processing arrangements, and import flows. In analyzing Australian ore supply, such shadow spot cargoes are often harder to observe than a mine's nominal production, yet can significantly influence the market during specific phases. SC6 and Lithium Chemicals: Transmission Direction Reversed Once Within a Year The price transmission relationship between Australian ore concentrates (SC6, CIF China) and China's lithium chemicals has completed a full round trip over the past year. In H1 2025, ore prices followed the downtrend. In Q1, Australian mines aggressively cut costs but did not reduce production, showing a strong willingness to sell. SC6 fell all the way to around $620/mt, and the lower concentrate prices, in turn, pressured lithium chemicals downward, forming a spiral. The market's concern at the time was: When would mines finally be willing to cut? The situation reversed starting at the end of Q3. The announcement of Yichun's plan to cancel 27 mining rights, along with the suspension at Jianxiawo, tightened expectations for domestic resource supply. Lithium chemical prices moved first, and SC6 followed with an uptrend that proved even more elastic—by December, the average price had already returned to around $1,300/mt. Formula pricing, linked to lithium chemical prices, allowed the mining side to capture the bulk of the upside gains, while the tolling margins of Chinese smelters were instead compressed. Meanwhile, the impairment and expansion adjustments at the Kwinana project reflect that lithium chemical conversion in Australia continues to face high hurdles in terms of cost control, production ramp-up, and operational stability. TLEA's Kwinana lithium hydroxide plant was fully impaired in mid-2025, with the second-phase construction halted, and IGO has clearly shifted its priority to mining. The role of Australian ore in the industry chain has been refixed as a supplier of concentrates, and the linkage between SC6 and Chinese lithium chemical prices will only tighten going forward, not decouple. The implied smelting margin—calculated by multiplying SC6 by the processing coefficient and comparing it to spot lithium chemical prices—has turned negative, meaning Chinese smelters using externally purchased ore are losing cash. Either ore prices must pull back or lithium chemical prices must rise; one of the two is inevitable. This indicator is the most powerful gauge of whether mines or lithium chemicals hold more pricing power. Australian Mine Production Resumptions: Price Breaks Through the Ceiling The key words for Australian ore in 2024-2025 were market exits, while in 2026 they have become revivals. Lithium prices have been climbing steadily since the beginning of the year, with futures prices once surpassing 200,000 yuan/mt, triggering a series of production resumptions in May and June: Project Action Timing Notes Bald Hill (MinRes) Resumed production after an 18-month shutdown Announced in May, first concentrates expected in Jul Restart cost approximately A$20 million Ngungaju Plant (PLS) Restart Planned for Jul Resuming roughly 200,000 mt/year Finniss (Core Lithium) FID approved, financing secured Targeting first ore in Q3 Financing approximately $205 million Kathleen Valley (Liontown) Evaluating expansion In progress — Mt Cattlin (Rio Tinto) Remains shut down From Mar 2025 to present Restart conditions not yet clarified Looking at these cases together, the real threshold for resuming production is more complex than simply having prices exceed cash costs. Bald Hill took only about two months from announcement to first ore because it had maintained a production-ready state throughout the shutdown, and MinRes's own mining services division could internally mobilize all operations—mining, crushing, and transport—without needing to wait for external contractors. Assets of this type are the quickest-responding supply when prices rise. Finniss, by contrast, was an entirely different situation: it first sold inventory to Glencore in exchange for liquidity, then cobbled together three financing instruments—convertible bonds, debt, and a share placement—before reaching FID. For mines with fragile balance sheets, resuming production is not an operational decision but a financing event; what low-price cycles destroy is not resources, but financing capacity. The market consequences of the resumption wave are already visible. Lithium carbonate hit a two-year high of 200,500 yuan/mt on May 13, then pulled back to the 160,000–170,000 yuan range in June, partly because the market saw resumption supply coming back. The logic is straightforward: when prices rise, idle capacity resumes production, supply expectations increase, and prices pull back. That list of idle capacity in Australia, when sorted, essentially forms the supply curve above lithium prices. The CGP3 fire and this wave of production resumptions are actually two sides of the same market: disruption to the incremental supply at the far left of the cost curve is bullish, while idle capacity at the right end accelerating its return is bearish. Looking at lithium prices this year from the resource perspective, equilibrium is being sought between these two forces. Lithium prices in 2026 are expected to fluctuate more frequently, but one-sided market moves will be shorter. After prices rise, what truly caps the height of the rally is the speed at which idle capacity re-enters the market. Projects under care and maintenance or on standby, such as Bald Hill, Finniss, and Ngungaju, essentially constitute elastic supply above lithium prices. When lithium prices return above the cash costs of these projects and stay there long enough, mines have the incentive to resume production. But production resumptions do not happen instantly. From the announcement of a restart to the rehiring of personnel, equipment maintenance, resumption of mining and processing, inventory buildup, and finally, the entry of concentrates into the market, it typically takes from two months to several quarters. This time lag is the window during which supply disruptions can drive prices higher. The suspension at Jianxiawo and the CGP3 fire at Greenbushes were able to affect market sentiment not because of a sudden global shortage of lithium resources, but because of a reduction in short-term available supply while idle capacity had yet to return. Compared to the previous cycle, it is worth noting that the window for risk premiums arising from resource-side disruptions is shortening. A growing number of mines are opting for care and maintenance rather than permanent closure; mining service companies, traders, and downstream enterprises are also participating in restart financing and offtake arrangements. As long as prices return above the break-even line, some idle capacity can resume more quickly. This means that in the future, lithium prices may still rise rapidly following supply disruptions, but the duration and height of one-sided market moves will be more easily constrained by production resumption expectations. Prices may not necessarily become more stable, but supply feedback could be faster. SMM New Energy Analyst Yang Le

Raw material side, lithium carbonate prices edged up this week, nickel sulphate prices fluctuated, and cobalt sulphate prices continued to fall.

After several rounds of sharp lithium price volatility, companies across the battery supply chain have become increasingly focused on raw-material risk management. Long-term agreements, spot procurement frameworks, futures and standard options are gradually becoming part of the procurement toolkit. At the same time, a more complex type of structured product has also attracted attention from industry participants: the Accumulator . At first glance, an accumulator contract offers a procurement opportunity at a price below the prevailing market level. In a range-bound or moderately rising market, it can indeed help reduce average procurement costs. However, the discount is not free. By obtaining a more favourable purchase price, the company is effectively selling part of its downside protection to the counterparty: it receives a limited procurement discount in exchange for assuming tail risk if prices fall. This article examines the basic mechanics of accumulators, their potential applications in the battery supply chain, their transmission effects on market prices and inventories, and the key issues companies should consider when using such instruments. 1. What Is an Accumulator? An accumulator is not a single standardized option. It is an over-the-counter structured contract under which the reference price is observed on a daily, weekly or monthly basis and procurement volumes accumulate over time. Under a typical structure, a downstream buyer agrees with a bank, trader or financial institution to purchase a specified quantity of raw-material exposure at a fixed price over a defined period. The agreed purchase price is usually below the prevailing spot price at inception, making the structure appear attractive from a pricing perspective. However, the contract normally includes two important features. The first is the knock-out mechanism . If the market price rises to a predetermined level, the contract terminates early. The buyer retains the discounts already obtained but can no longer continue purchasing at the discounted price. The second is the volume-multiplier mechanism . If the market price falls below the agreed strike price, the buyer is required to continue purchasing a larger quantity. A common structure is a doubling of the purchase volume, although other multipliers may also be agreed. This creates a clear asymmetry: Market Scenario Outcome for the Buyer Prices rise moderately but remain below the knock-out level The buyer continues purchasing at a price below spot and benefits from the discount Prices rise rapidly and reach the knock-out level The contract terminates early; previous discounts are retained, but the buyer must return to the spot market for future procurement Prices fall below the strike price The buyer must continue purchasing at the agreed price and at a higher volume, usually double the original quantity Prices continue to fall High-cost purchases accumulate, inventory pressure increases and cash-flow exposure expands; theoretical losses are uncapped The defining feature of the accumulator is therefore not simply price locking. It is the exchange of limited procurement discounts for downside tail-risk exposure. 2. Why Would Downstream Battery Companies Consider This Type of Structure? Several characteristics of the battery supply chain make accumulator structures attractive under certain conditions. First, raw-material prices can be highly volatile. Lithium prices have experienced both rapid increases and prolonged declines. For cathode-material producers and battery-cell manufacturers, changes in lithium carbonate prices can quickly affect product costs and profit margins. Second, there is a clear timing mismatch across the supply chain. Companies often need to secure raw materials in advance, while downstream orders and actual deliveries remain uncertain. When prices rise, buyers worry about insufficient procurement coverage. When prices fall, they worry about having locked in excessive volumes at elevated prices. Third, some downstream companies prefer not to pay the explicit upfront premium associated with standard options. An accumulator embeds knock-out and volume-multiplier provisions, converting part of the visible premium into conditional risk. This can make the initial pricing appear more attractive. However, this does not mean accumulators are suitable for every company. They are more appropriate for companies with stable raw-material demand, strong cash-flow capacity, mature risk-management systems and professional derivatives teams. For companies with volatile demand, limited inventory capacity or significant funding pressure, accumulators can materially amplify operating risk. 3. A Simplified Scenario: How Does an Accumulator Work? Consider a cathode-material producer. At the time of signing, the spot price of lithium carbonate is RMB 100,000 per tonne. The company is concerned about a possible price rebound and wants to lock in part of its future procurement cost. A simplified accumulator structure could be designed as follows: Contract Term Illustrative Setting Spot price at inception RMB 100,000/tonne Accumulator strike price RMB 90,000/tonne Knock-out price RMB 110,000/tonne Base purchase volume 100 tonnes per month Purchase volume if price falls below strike 200 tonnes per month Contract tenor 12 months Scenario 1: Prices Rise Moderately The lithium carbonate price rises from RMB 100,000 to RMB 105,000 per tonne but does not reach the knock-out price of RMB 110,000 per tonne. The company continues purchasing at RMB 90,000 per tonne and gains a procurement advantage of RMB 15,000 per tonne. This is the most favourable environment for an accumulator: prices remain range-bound or rise moderately, allowing the buyer to continue benefiting from discounted procurement. Scenario 2: Prices Rise Rapidly and Trigger the Knock-Out The lithium carbonate price rises to RMB 110,000 per tonne, triggering the knock-out mechanism. The contract terminates early. The company retains the discounts already achieved but must return to the spot market for future purchases, now at a higher price level. This demonstrates that an accumulator provides only limited protection against extreme upside risk. Scenario 3: Prices Fall Below the Strike Price The market price falls to RMB 70,000 per tonne. The company must still purchase at RMB 90,000 per tonne, and the monthly purchase volume doubles from 100 tonnes to 200 tonnes. The monthly cost disadvantage reaches RMB 4 million. If the price falls further to RMB 50,000 per tonne, the monthly cost disadvantage increases to RMB 8 million. If actual production demand is insufficient, the additional volumes cannot be consumed immediately and will become involuntary inventory. The core risk of an accumulator is therefore not price volatility alone. It is that the company is forced to expand its exposure precisely when market prices move against it. Procurement volumes, inventory pressure and cash-flow risk rise at the same time. 4. How Can Accumulators Affect Lithium Market Prices and Inventories? When a market contains a meaningful volume of outstanding accumulator contracts, physical orders alone may no longer fully explain procurement behaviour. Traditional supply-demand analysis usually focuses on mine output, lithium chemical production, cathode-material production schedules and end-use demand. However, financial instruments can influence physical procurement patterns around specific price levels, creating signals that do not fully reflect underlying fundamentals. When accumulator contracts are concentrated around a particular price range, three phenomena may emerge. First, Downstream Procurement May Increase as Prices Fall Falling prices would normally suggest weakening demand. However, if accumulator contracts trigger volume multipliers, downstream companies may be required to increase purchases. Some market participants may interpret this as restocking or demand recovery. In reality, part of the additional procurement may be driven by contractual obligations rather than improved end-use demand. Second, Inventory Composition May Change High-cost inventory accumulated through contractual obligations may not immediately return to the market. However, it can reduce companies’ willingness to make additional discretionary purchases and create destocking pressure when prices recover. Inventory analysis should therefore go beyond total volume. It should also examine how inventory was accumulated and at what cost. Third, Liquidity May Become Distorted Around Key Price Levels If a large number of contracts are concentrated near similar trigger prices, volume multipliers, margin changes and dynamic hedging by counterparties may jointly affect market liquidity. This can create short-term volatility that appears disconnected from the underlying supply-demand balance. It is important to emphasize that the price impact of accumulator structures is not necessarily one-directional. The effect depends on whether contracts are physically settled, how counterparties hedge their positions, whether contract sizes are sufficiently large and whether exposures are clustered around similar price levels. For analysts, periods of significant lithium price volatility require closer attention to procurement behaviour, unusual increases in transaction volumes during price declines and signs of involuntary inventory accumulation. An increase in procurement during a falling market should not automatically be interpreted as a recovery in real demand. 5. Lessons from the 2023–2024 Lithium Price Downturn Lithium carbonate prices declined by more than 80% from their peak during the 2023–2024 downturn. This provides a useful stress-test scenario for evaluating the risks embedded in accumulator structures. If downstream companies had entered large accumulator positions with relatively high strike prices during the elevated-price period, a prolonged decline would have amplified the pressure through volume multipliers, high-cost inventory accumulation and cash-flow requirements. The key lesson is that the knock-out mechanism terminates gains during price increases, while the volume-multiplier mechanism magnifies losses during price declines. This structural asymmetry can become particularly severe in highly volatile commodity markets. A company may have stable physical demand, but stable physical demand does not automatically mean that its financial exposure is safe. Because accumulator contracts are generally customized over-the-counter instruments, public markets rarely provide complete information on individual companies’ positions, strike prices or contract tenors. It is therefore more appropriate to view the 2023–2024 downturn as a risk scenario rather than as confirmation of any specific company’s actual transaction behaviour. 6. How Should Companies Use Accumulator Structures Prudently? Accumulators are most suitable for managing a portion of highly certain procurement demand. They should not replace the overall procurement framework. A more appropriate approach is to integrate accumulators into a layered procurement system rather than use them as the primary tool. Demand Category Characteristics More Suitable Instruments Base demand Supported by confirmed orders and rigid procurement needs Long-term agreements, spot frameworks and futures hedging Flexible demand Order probability is relatively high, but delivery timing may vary Staged spot procurement, futures or standard options Strategic demand The company can tolerate some volume variation and seeks to optimize average procurement cost Small-scale accumulator positions In practical terms, companies should focus on at least four constraints. Link the Structure to Real Procurement Demand The base volume under the accumulator should remain materially below confirmed procurement requirements. Even after the multiplier is triggered, the company should still be able to absorb the resulting volume through actual production. If a company needs 500 tonnes per month, it should not set the base accumulator volume at 500 tonnes. Once doubled, the required purchase volume would materially exceed actual consumption. Link the Structure to Inventory Limits Companies should define inventory limits in advance, including: Maximum inventory volume; Maximum inventory days; Maximum proportion of high-cost inventory; Warehouse capacity; Working-capital requirements. If the additional purchase volume triggered by a price decline would exceed these limits, the company should not expand its accumulator exposure. Conduct Stress Testing Before signing, the company should model scenarios in which prices fall by 20% or 40%, remain below the strike price for six consecutive months, downstream orders fall short of expectations and inventory turnover slows. Only companies that can maintain cash-flow safety under extreme scenarios should consider using accumulator structures. Ensure the Pricing Benchmark Matches the Physical Exposure Battery materials are not fully standardized products. If the specification or delivery location of the company’s physical lithium carbonate procurement differs from the settlement benchmark used in the derivative contract, basis risk may arise and reduce the effectiveness of the hedge. The contract should clearly define: Reference product; Product specification; Delivery location; Settlement benchmark; Price source; Quality differentials. Companies should not focus only on whether the strike price appears attractive. 7. What Problems Cannot Be Solved by Accumulators? Accumulator structures can help reduce a portion of procurement costs, but they cannot eliminate all supply-chain risks. First, they cannot solve physical supply shortages. If the market experiences resource constraints, logistics disruptions or supplier defaults, a cash-settled accumulator cannot provide physical material. Second, they cannot fully protect against extreme price increases. Once the knock-out level is triggered, the company must return to the spot market. Third, they cannot replace inventory discipline. Even a discounted purchase price can become a burden if the company lacks effective inventory management. Fourth, they cannot create real demand. Financial instruments do not generate physical orders. Companies should not expand procurement merely because a discounted purchase opportunity exists. Fifth, they cannot eliminate basis risk. Differences in product specifications, quality, geography and trading terms may still reduce hedging effectiveness. Conclusion Accumulator contracts are not inherently unsuitable, but they must be placed within a strict procurement-management framework. They can serve as a complementary tool alongside spot procurement, long-term agreements, futures and standard options. In range-bound or moderately rising markets, they may help companies optimize average procurement costs. However, the discount comes from risk transfer rather than risk elimination. The buyer receives a limited price advantage while assuming the obligation to expand purchase volumes, increase inventory and absorb greater cash-flow pressure when prices fall. From the perspective of lithium market analysis, accumulators introduce an important additional dimension: An increase in procurement during a falling market does not necessarily indicate real demand recovery. An increase in inventory does not necessarily indicate active restocking. Around key lithium price levels, the impact of financial contracts on physical procurement behaviour deserves close attention. Disclaimer: This article provides an analysis of market mechanisms based on commonly used industry structures and publicly available information. It does not constitute confirmation or implication of any specific company’s actual positions, trading activities or financial condition. Lesley Yang Senior New Energy Analyst, SMM yangle@smm.cn

Raw material side, spot lithium carbonate and nickel sulphate prices fluctuated this week, while cobalt sulphate prices continued to decline.

Spot lithium carbonate prices continued to decline this week. The futures market performed weakly, with the price range of the most-traded LC2609 contract fluctuating downward from 178,000-182,100 yuan/mt at the beginning of the week to 157,600-167,600 yuan/mt, hitting a mid-week low of 157,600 yuan/mt, with a weekly decline of approximately 10.7%. Overall open interest decreased, and market sentiment was bearish. Market transactions exhibited a divergent pattern of "upstream holding prices firm and holding back from selling, downstream dip-buying," while actual transactions maintained a certain level of activity. Upstream lithium chemical plants showed a passive attitude toward spot order shipments, with sentiment to hold prices firm and hold back from selling still prevailing. Only some enterprises that had hedged at higher levels earlier were able to close a small number of spot orders with downstream buyers or traders. On the downstream material plants side, June production schedules stayed high with demand continuing to grow. Supported by rigid demand, some enterprises maintained dip-buying and stockpiling for rigid needs. As prices continued to fall, some enterprises adopted a cautious wait-and-see attitude, with purchase willingness and target prices adjusted downward in tandem. Overall, market inquiries and actual transactions maintained a certain level of activity. Supply side, production increased, and industry chain inventory changes diverged significantly. Lithium carbonate production increased this week, mainly due to the successive production resumptions of spodumene processing lines that had previously undergone maintenance. The recycling segment and salt lake segment maintained stable production, while the lepidolite segment experienced minor production fluctuations due to raw material supply issues. In terms of inventory changes: upstream lithium chemical plants saw slight destocking this week as long-term contract orders were delivered in a concentrated manner at the beginning of the month, coupled with some resumed production lines not yet operating at full capacity; downstream material plants saw inventory buildup as long-term contracts and customer-supplied materials arrived successively at the beginning of the month, combined with dip-buying spot orders; traders saw destocking as downstream buyers purchased as needed. Looking ahead, spot lithium carbonate prices are expected to maintain an in the doldrums pattern in the short term, but downside room is limited. Supply side, the pace of Zimbabwean lithium ore arrivals at ports and the progress of production resumptions at Jiangxi mines are key variables going forward. Demand side, downstream production schedules in June stay high, and rigid demand support persists. Short-term lithium prices are expected to maintain a fluctuating trend. It is recommended to closely monitor warrant inflection points, the pace of Zimbabwean lithium ore arrivals at ports, and the actual fulfillment of downstream production schedules.