[SMM Cobalt & Lithium Morning Call: Raw Material Prices Diverge, Industry Demand Maintains Structural Support] This week, industry chain prices showed divergence. Lithium ore, lithium chemicals, nickel chemicals and cobalt products were overall under pressure. Downstream procurement remained focused on long-term contract cargo pick-ups and essential restocking, and the market still held expectations of increasing supply and price declines in the long term. Cathode material side, ternary system prices pulled back along with raw material costs, while LFP and iron phosphate strengthened slightly, supported by order growth and cost support. Anode and separator markets held stable overall, and electrolyte moved up, driven by rising additive and solvent prices. Demand from energy storage, commercial vehicles and markets outside China maintained good performance, supporting continued growth in the industry's production schedules, but recovery on the consumption side remained relatively slow.

On 29 July, Australian lithium producer Liontown released its quarterly report for the period ended 30 June 2026. The Kathleen Valley lithium project produced 103.1 kdmt of spodumene concentrate during the June quarter, up 7% QoQ, while sales increased 29.3% QoQ to 108.5 kdmt. Average shipped grade was 5.0% Li₂O, while the average realised price was US$1,880/dmt on an SC6e, CIF basis. For FY26, Kathleen Valley produced 392.0 kdmt of spodumene concentrate, within the company’s previous guidance range of 365–450 kdmt. Liontown issued a clarification on the same day to amend the units of reference used in its FY26 results and FY27 guidance, removing the previous references to SC6 from concentrate production and cost metrics. Accordingly, concentrate production is reported on an actual dry metric tonne basis, unit operating costs are calculated per dry metric tonne sold, while average realised prices continue to be reported on an SC6-equivalent basis. Kathleen Valley has gradually moved beyond the initial question of whether it can achieve stable production and is now entering the underground mining ramp-up phase. More importantly for the lithium market, however, the key signal from this quarter is not the amount of additional concentrate Liontown will produce in FY27. Rather, the previous recovery in lithium prices has strengthened Liontown’s cash flow and balance sheet sufficiently to support renewed investment in underground development and expansion. Supply elasticity is therefore showing up first in capital expenditure rather than in near-term tonnes. US$1,880/dmt Marks a Quarterly High for Liontown, but Remains Below the 2026 Market Average Liontown achieved an average realised price of US$1,880/dmt on an SC6e, CIF basis during the June quarter, only 1.9% higher than US$1,845/dmt in the previous quarter. From Liontown’s own pricing history, this represented the highest quarterly realised price in FY26. Kathleen Valley’s average realised prices across the four quarters of FY26 were US$691/dmt, US$985/dmt, US$1,845/dmt and US$1,880/dmt, respectively, with a full-year average of US$1,379/dmt. However, viewed against the broader spodumene market in 2026, US$1,880/dmt is not particularly high. Compared with SMM’s year-to-date average for SC6 CIF China, Liontown’s realised price during the quarter remained at a discount to the broader market average. This suggests that Liontown has not fully captured the magnitude of the increase previously seen in spot spodumene prices. Table 1. Kathleen Valley FY26 Production, Sales and Pricing Metric Q1 FY26 Q2 FY26 Q3 FY26 Q4 FY26 Spodumene concentrate production (dmt) 87,172 105,342 96,367 103,111 Spodumene concentrate sales (dmt) 77,474 112,122 83,912 108,489 Average shipped grade 5.00% 5.10% 5.10% 5.00% Average realised price (US$/dmt, SC6e) 691 985 1,845 1,880 Source: Liontown. One important explanation lies in the pricing mechanism of Liontown’s offtake agreements. The company stated that customer receipts during the quarter benefited from stronger lithium indices and offtake agreements with lagged quotation periods, meaning that some contract prices are determined using benchmark prices from earlier periods. Liontown’s realised price therefore does not immediately track the contemporaneous spot market. Instead, benchmark prices are transmitted into realised prices with a time lag through contractual pricing formulas. During a rising market, this mechanism can leave realised prices below spot prices. Conversely, when spot prices fall, the same lag can temporarily support realised prices above prevailing market levels. For earnings analysis, US$1,880/dmt should therefore not simply be interpreted as Liontown’s current market selling price. The more relevant indicator is the evolution of Liontown’s realised-price discount or premium relative to the SMM SC6 CIF China benchmark. In other words, Liontown generated the current improvement in cash flow even though its realised price remained below the 2026 market average. This suggests that Kathleen Valley has already developed relatively strong cash-generation capability under the current pricing environment. Prices Have Moved Through the Income Statement and Are Now Feeding into Capex Liontown generated A$235 million in revenue during the June quarter, with operating cash flow reaching A$180 million. Net cash increased by A$137 million during the quarter, taking the company’s cash balance from A$424 million at the end of March to A$561 million at the end of June. At the end of FY25, Liontown held only A$156 million in cash. Its cash balance has therefore increased by more than threefold over FY26. Management has also explicitly changed the language around capital allocation. Six months ago, the company’s capital discipline was primarily focused on strengthening the balance sheet. It has now shifted towards pursuing value-accretive growth. This represents the key capital-cycle signal in the quarterly report: Higher lithium prices → improved realised prices → stronger cash flow → balance-sheet repair → renewed underground development and expansion capex. Liontown has now moved into the latter part of this transmission chain. FY27 Production Increases by Only ~23 kt, While Capex Rises to Nearly Three Times FY26 Levels Based on Liontown’s clarified reporting basis, the company produced 392 kdmt of spodumene concentrate in FY26, with FOB unit operating costs of A$987/dmt sold, AISC of A$1,233/dmt, and total capital expenditure of A$114 million. For FY27, Liontown is guiding to spodumene concentrate production of 390–440 kdmt, FOB unit operating costs of A$1,050–1,250/dmt sold, and total capital expenditure of A$320–370 million. Table 2. Liontown FY26 Actuals vs FY27 Guidance Metric FY26 Actual FY27 Guidance Change at Midpoint Spodumene concentrate production (kdmt) 392 390–440 0.059 FOB unit operating cost (A$/dmt sold) 987 1,050–1,250 0.165 AISC (A$/dmt) 1,233 — — Total capital expenditure (A$m) 114 320–370 ~+203% Source: Liontown clarification dated 29 July. At the midpoint of FY27 production guidance, Kathleen Valley would produce approximately 415 kdmt, only around 23 kdmt more than FY26, representing growth of roughly 5.9%. By contrast, the midpoint of FY27 capex guidance is A$345 million, approximately three times FY26 expenditure. FY27 should therefore not simply be characterised as a year of production growth. A more accurate interpretation is: FY27 is a transition year in which production growth remains limited while substantial capital is deployed ahead of future capacity growth. This also illustrates the time lag between the recovery in lithium prices and the eventual supply response. Investment is responding first; additional physical tonnes will follow later. Why Are Unit Costs Rising from A$987/dmt to A$1,050–1,250/dmt? The increase in FY27 cost guidance is another important variable in the report. FY26 FOB unit operating costs averaged A$987/dmt sold, while FY27 guidance rises to A$1,050–1,250/dmt sold. At the midpoint of A$1,150/dmt, this represents an increase of approximately 16.5%. This should not automatically be interpreted as evidence that underground mining is structurally more expensive. Liontown has not provided a quantitative breakdown of the factors driving the FY27 unit-cost increase, but the report identifies several relevant factors. First, logistics costs have increased. June-quarter unit operating costs rose from A$981/dmt sold to A$995/dmt sold, with Liontown attributing the increase primarily to higher diesel prices resulting from conflict in the Middle East, which increased transportation costs. Second, underground mine development expenditure is increasing. Q4 FY26 AISC rose from A$1,251/dmt sold to A$1,314/dmt sold, mainly because underground mine development costs began to be recognised as sustaining capital following the declaration of commercial production. Third, FY27 production guidance incorporates both scheduled maintenance and additional downtime required to connect expansion infrastructure with the existing processing system. This downtime has an important secondary effect: even if absolute fixed costs remain unchanged, lower saleable volumes mechanically increase costs on an A$/dmt sold basis. The increase in FY27 costs therefore appears to reflect a combination of: higher energy and logistics costs + increased underground development expenditure + fixed-cost dilution associated with planned downtime. These drivers have different degrees of persistence. If underground operations stabilise, recoveries improve and expansion-related downtime declines, some of the FY27 cost pressure could unwind. However, if underground mining itself carries materially higher unit mining costs, Kathleen Valley’s long-term cost base could shift structurally higher. Further FY27 operating data will be required to distinguish between these two outcomes. At this stage, there is insufficient evidence to treat the A$1,050–1,250/dmt FY27 range as Kathleen Valley’s new long-term normalised cost level. Underground Ore Mined Falls 12%, While Development Metres Rise 35% Kathleen Valley’s mining data also display characteristics typical of an underground mine in ramp-up. Underground ore mined during the June quarter fell 12% QoQ to 356 kt. However, underground development increased 35% QoQ to a record 3,316 metres. This suggests that Liontown is not simply maximising near-term ore extraction. Instead, it is developing additional underground headings and mining areas to support higher future mining rates. The company plans to maintain an underground mining run rate of approximately 1.5 Mtpa in Q1 FY27, before beginning the next stage of the ramp-up in Q2 FY27, with a target of reaching a 2.8 Mtpa annualised mining run rate by the end of FY27. Processing recovery represents a second potential source of production growth. Kathleen Valley processed 647 kt of ore during the June quarter at an average feed grade of 1.3% Li₂O, while lithium recovery improved from 61% to 63%. Underground ore accounted for 55% of plant feed. Liontown stated that when the plant processes sustained campaigns of cleaner underground ore, lithium recoveries can consistently reach approximately 70%. Future concentrate production therefore depends on two separate variables: Mining rate determines how much ore is available; recovery determines how much concentrate can be produced from that ore. If underground mining rates and plant recoveries improve simultaneously, Kathleen Valley could benefit from both higher ore availability and better conversion into concentrate. Conversely, even if the 2.8 Mtpa annualised mining-rate target is achieved, sustained recovery of only around 63% would result in lower concentrate production than the theoretical mining capacity might otherwise imply. FY27 Guidance Should Not Be Treated as 100% Certain Supply For a project still ramping up underground operations, company guidance should not be treated as guaranteed supply. Based on Kathleen Valley’s current operating position, SMM applies the following scenario framework to FY27 concentrate production: Table 3. Kathleen Valley FY27 Production Scenarios Scenario Key Assumptions FY27 Concentrate Production Probability Bull Underground development progresses to plan; recovery approaches 68–70%; limited impact from planned downtime 430–440 kdmt 20% Base Underground ramp-up broadly on schedule; 2.8 Mtpa run rate reached mainly toward FY27-end; recovery at 63–66% 400–420 kdmt 60% Bear Development, equipment utilisation or recovery underperforms; downtime exceeds expectations 370–390 kdmt 20% The 20%/60%/20% probabilities represent SMM’s analytical risk-weighting assumptions based on the project’s current stage, rather than Liontown guidance or statistically derived historical probabilities. Under this framework, probability-weighted FY27 concentrate production would be approximately 410 kdmt, slightly below the 415 kdmt midpoint of company guidance. These probabilities can be updated as Liontown reports Q1 FY27 underground development, ore mined, recovery rates and actual downtime. FY27 Underground Ramp-Up and the Expansion FID Need to Be Analysed Separately One important distinction is that Liontown’s FY27 production guidance of 390–440 kdmt does not represent post-expansion production. The company has explicitly stated that its FY27 guidance assumes no final investment decision has yet been made on the Kathleen Valley Expansion. The current A$320–370 million capex guidance includes the remaining early works announced in April, but excludes additional expansion capital expenditure that would follow a positive FID. The two sources of future supply therefore require different risk adjustments: FY27: discount for underground ramp-up and operational execution risk. FY28 onward: apply additional discounts for FID, capital requirements, construction schedule, plant integration and ramp-up risk. Liontown has already commenced early works and long-lead procurement ahead of the formal FID, including the purchase of a 5.5 MW ball mill designed to increase processing capacity and improve grinding control and recovery. A formal FID is expected by the end of Q1 FY27. The expansion has therefore moved beyond the stage of being merely an announced project. However, this does not mean that the expansion’s full incremental capacity should automatically be included in the FY28 supply balance. FID does not equal on-time commissioning, and on-time commissioning does not equal immediate achievement of nameplate capacity. Kathleen Valley’s ~23 kt FY27 Increment Is Small in the Context of Australian Spodumene Supply At the midpoint of guidance, Kathleen Valley would add only around 23 kt of spodumene concentrate in FY27 compared with FY26. Using standard industry SC6 conversion assumptions, this represents only several thousand tonnes of LCE, making it a marginal addition to a global lithium market measured in millions of tonnes of LCE. The scale becomes clearer when compared with other established Australian assets. Following completion of P1000, PLS’s Pilgangoora operation has reached nominal spodumene concentrate capacity of approximately 1 Mtpa. PLS has also approved the restart of the approximately 200 ktpa Ngungaju processing plant in 2026. Meanwhile, Wesfarmers and SQM have recently approved A$1.45 billion of investment to expand Mt Holland, targeting an increase in spodumene concentrate capacity from approximately 380 ktpa to 760 ktpa, although first incremental production is not expected until around 2030. Liontown’s quarterly report therefore does not materially change the FY27 global spodumene supply balance. Its broader significance lies elsewhere: Kathleen Valley provides a clear example of how improving lithium economics are beginning to reactivate capital expenditure across established Australian assets. What the market is currently seeing is therefore a leading indicator of future supply elasticity, rather than the supply itself. SMM View: Liontown Is Signalling That Capital Is Returning Before Supply Does Liontown’s quarterly report has limited direct implications for the near-term spodumene supply-demand balance. The midpoint of FY27 concentrate production guidance is only around 23 kt above FY26 actual production. Even if fully achieved, this would not represent a material addition to global lithium supply. The more significant change is in capital deployment. Liontown ended FY26 with A$561 million of cash, while FY27 capital expenditure guidance has increased from A$114 million in FY26 to A$320–370 million. The company is increasing underground development, procuring expansion equipment ahead of FID and targeting an Expansion FID around the end of September. Kathleen Valley therefore illustrates a four-stage supply response: Higher prices → stronger cash flow → capex recovery → incremental production. Liontown is currently moving from the second stage into the third. The quarterly report therefore cannot be reduced to a simple narrative of “higher lithium prices → Liontown increases production → supply pressure rises.” The actual FY27 volume increase is limited, while the supply associated with today’s capital expenditure will predominantly emerge from FY28 onward. For the global lithium market, the more important question is whether the same pattern is beginning to emerge simultaneously across high-quality Australian brownfield assets. Pilgangoora has completed P1000 and is restarting Ngungaju; Mt Holland has approved A$1.45 billion of expansion investment; and other Australian assets, including Mt Marion, are also seeing renewed capital deployment. If improving lithium economics continue to reactivate expansion spending across existing mines, medium-term supply elasticity could prove materially greater than suggested by looking only at incremental production over the next 12 months. For Liontown itself, the next event that matters more than another ordinary quarterly production number will be the Kathleen Valley Expansion FID expected around the end of September. At that point, the key variables for the supply model will not simply be whether the project is expanded, but the targeted capacity, capital intensity, construction schedule and ramp-up timeline. Those four variables will ultimately determine when the capital being deployed today becomes physical spodumene concentrate entering the market. SMM New Energy Analyst Lesley Yang yangle@smm.cn

On July 22, Wesfarmers and SQM formally approved the expansion of the Mt Holland lithium project. The project will construct a second beneficiation plant and an ore pre-selection facility, increasing the nominal capacity of lithium concentrates from approximately 380,000 mt/year to 760,000 mt/year.

Shanghai, July 23– Shanghai Metals Market (SMM) is thrilled to announce that we have maintained our membership at the International Lithium Association (ILiA) for four consecutive years since joining it in November 2022, serving as a long-standing and stable senior member of the association. Over the years, SMM has remained committed to advancing coordinated development across the global lithium sector and steadily deepening its cooperation with ILiA. We have continuously built exchange and networking platforms linking lithium industry participants in China and overseas, and organized numerous cross-border industry events. Besides, we have also regularly co-hosted online webinars on global lithium market insights alongside the ILiA, delivering full-industry-chain market data, sector trends and cutting-edge industrial research, fostering knowledge exchange and high-quality development within the lithium industry at home and abroad. Building on four years of solid cooperation and growing mutual industry trust, the two parties recently reached a newly upgraded cooperation model, ushering in an all-round deepening of their partnership: Martin Ma, Head of ILiA China, delivered a solo speech at the SMM New Energy Industry Chain Expo (CLNB) 2026 Li-ION BATTERY Africa 2026 secured partnership with ILiA. Tom Drabble, Global Sustainability Manager at ILiA, attended panel discussion on the topic of "Securing Stable Supply of Lithium, Cobalt, Graphite, and Phosphate – Africa's Role and Challenges". Astrid Karamira, EMEA Representative Director at ILiA, delivered a speech on the topic of "Material Trends - Decoding Global Supply-Demand for Critical Metals " at the SMM Li-ion Battery Europe 2024. Astrid Karamira participated in panel discussion at the SMM Li-ion Battery Europe 2025 under the topic of "Building a European Battery Raw Materials Ecosystem Driven by Policies – Supply Chain Challenges and Opportunities" Astrid Karamira spoke at the SMM Li-ion Battery Americas 2024 SMM CEO Logan Lu stated that the further upgrade of cooperation between the two parties is an inevitable choice in line with the globalisation and low-carbon development of the lithium industry. Relying on SMM's comprehensive industry chain data service capabilities, combined with the ILiA's platform advantages covering upstream and downstream industry leaders globally, the two parties will carry out deeper collaboration in market intelligence, ESG development, cross-border industry matchmaking, and battery circular economy in the future, driving complementary advantages, and mutual benefit of global lithium industry chain resources, and jointly building a green, stable and synergistically developing global lithium industry ecosystem. About the International Lithium Association (ILiA) The International Lithium Association (ILiA) was founded in 2021. It is an international non-profit trade association for the lithium industry, and has been upholding the three visions and missions of "giving a voice to the lithium industry, enhancing ESG and sustainable development in the lithium industry, and becoming an authoritative body for the lithium industry." In addition to 7 core members, the association also has over 30 associate members from the lithium industry value chain involved in business areas such as lithium mining projects, battery materials, battery manufacturing or engineering. Its associate members include SMM, Albemarle Corporation, Chengxin Lithium, Tianqi Lithium, Rio Tinto , etc.

[SMM Cobalt-Lithium Morning Briefing: This week, prices in the new energy industry chain continued to diverge. The lithium industry chain was generally weak. The transaction center of lithium ore shifted lower alongside lithium chemical prices, and lithium carbonate fell to around 150,000 yuan/mt. Downstream firms bought the dip at low price levels, but upstream producers held prices firm and held back from selling, intensifying the market tug-of-war. Lithium hydroxide transaction prices declined in tandem, and overall trading remained sluggish. In the cobalt industry chain, demand was weak. Refined cobalt, cobalt sulphate, and cobalt chloride all lacked effective transaction support, while prices of intermediate products and Co3O4 temporarily held steady. Nickel sulphate inventory continued to decline, but downstream stockpiling willingness was insufficient, and prices still faced pressure.]

On July 2 (local time), the US Defense Logistics Agency (DLA) issued a solicitation for a five-year fixed-price contract to procure battery-grade lithium carbonate for the US National Defense Stockpile . According to the solicitation, the contract covers up to 35,641,599 lbs (approximately 16,167 metric tons) of battery-grade lithium carbonate, with a maximum contract value of US$300 million . Bids will be accepted until July 17 , and the contract will be awarded to the technically acceptable offer with the lowest evaluated price. The minimum guaranteed order value is US$1 million . The procurement schedule indicates that approximately 8.06 million lbs (around 3,657 tonnes) will be purchased during the first contract year, gradually declining to approximately 6.26 million lbs (around 2,839 tonnes) in the fifth year. The product must be powdered battery-grade lithium carbonate with a minimum purity of 99.5% , delivered to DLA warehouses located in New York, Nevada, Indiana, or Ohio . The procurement forms part of the US National Defense Stockpile program , aiming to strengthen strategic reserves of critical minerals and enhance supply chain resilience for national defense and critical industries. The five-year contract also underscores the US government's continued efforts to reinforce the security of its critical mineral supply chain. SMM will continue to monitor the tender process and subsequent contract awards. SMM Analysis Key Takeaway: This is more of a strategic policy signal than a demand shock for the lithium market. Rather than representing a sudden increase in commercial lithium demand, the tender demonstrates that the United States is moving from policy planning to the actual implementation of its critical mineral stockpiling strategy. The DLA Strategic Materials office is responsible for managing the US National Defense Stockpile, which serves national security purposes rather than commercial inventory management. Earlier this year, in March, the DLA had already issued a Request for Information (RFI) regarding the potential procurement of approximately 550 tonnes of lithium carbonate , indicating that lithium stockpiling has become part of a broader expansion of the US critical mineral reserve system rather than an isolated initiative. Limited Impact on Global Supply-Demand Fundamentals The announced procurement totals approximately 16,200 tonnes over five years, averaging roughly 3,200 tonnes per year (LCE) . Compared with global lithium consumption, this volume remains relatively small and is significantly outweighed by fluctuations in EV and energy storage demand. Consequently, the procurement is unlikely to materially alter the global supply-demand balance or fundamentally change lithium market dynamics in the near term. Instead, it should be viewed as a long-term strategic procurement program , with limited direct impact on spot market fundamentals. Procurement Strategy Prioritizes Supply Security Based on the announced ceiling value of US$300 million , the implied maximum procurement price is approximately US$18,600 per tonne , or roughly RMB 134,000 per tonne . While this figure does not represent the actual transaction price, it suggests that the US government places greater emphasis on security of supply, supplier qualification, and long-term delivery reliability , rather than simply sourcing at the lowest spot price available in Asia. Should the final contract prices exceed prevailing Asian market prices, the procurement could effectively create a policy premium for qualified suppliers. Supply Chain Implications Although the required product specification—battery-grade lithium carbonate with a purity of at least 99.5% —is relatively standard, participation requires suppliers to satisfy government procurement requirements, demonstrate reliable delivery capability, and comply with US procurement regulations. As a result, the tender is expected to favor North American producers , as well as qualified suppliers from Australia, South America, and other "friend-shoring" jurisdictions , rather than traditional spot-market traders. Market Implications SMM believes the impact can be assessed across three dimensions. 1. Limited Near-Term Price Impact The procurement schedule translates into roughly 200–300 tonnes per month , which is insignificant relative to China's monthly lithium salt production, cathode manufacturing, and downstream battery demand. Therefore, the procurement alone is unlikely to change the short-term direction of lithium carbonate prices. 2. Positive Sentiment Effect At current low lithium price levels, government stockpiling reinforces the narrative that lithium is evolving from a purely commercial commodity into a strategic resource . Although the direct demand impact is modest, the announcement could provide short-term support to market sentiment, particularly when oversupply expectations have already been largely priced in. 3. Long-Term Strategic Repricing If the United States continues supporting domestic and allied lithium supply through the DLA, the Defense Production Act, critical mineral incentives, government loans, and long-term procurement contracts, a parallel strategic procurement market may gradually emerge. Such demand may remain relatively small in volume but could command stronger pricing and place greater emphasis on supply security, ESG compliance, traceability, and geopolitical alignment. SMM View The significance of this announcement lies more in its policy implications than its immediate demand impact . In the short term, the procurement is unlikely to materially affect lithium carbonate supply-demand fundamentals or spot prices. However, over the longer term, the inclusion of lithium within the US national defense stockpile further highlights its strategic importance and may provide stronger policy support for North American and allied lithium projects. Lesley Yang New Energy Analyst Shanghai Metals Market (SMM)

[SMM Cobalt Lithium Morning Meeting Minutes: This week, overall sentiment in the industry chain recovered, as a rebound in upstream raw material prices drove some material prices higher. Lithium carbonate, LFP, and separator segments performed strongly. Downstream production schedules stayed high, with demand from energy storage, commercial vehicles, and power batteries still providing support. However, acceptance of high prices was limited, and actual transactions were mostly based on essential needs. Cobalt salts, nickel salts, and ternary cathode precursors remained in the doldrums, with a strong wait-and-see sentiment prevailing in the market. Overall, short-term prices may continue to drift higher, but attention still needs to be paid to raw material arrivals, the sustainability of restocking, and the realization of end-use demand going forward.]

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

[CleanTech Is About to Sign a 40-Year Operating Contract With the Chilean Government for the Laguna Verde Lithium Project] CleanTech Lithium, an Anglo-Australian company, is about to sign a 40-year contract with the Chilean government to develop the Laguna Verde lithium project in the Atacama Region, enabling it to advance extraction of this mineral at one of the salt lakes opened to the private sector. After reaching agreement with the Ministry of Mining on the terms of the Special Lithium Operating Contract (CEOL), Chile’s Office of the Comptroller General is now expected to approve the document in Q2 2026. CleanTech, its subsidiary Atacama Salt Lakes, and minority shareholders that are among the consortium members established to advance the Laguna Verde project have begun celebrating this new phase, as it provides greater certainty for their investment. [Rio Tinto Begins Commercial Lithium Exports From the Rincon Project] Rio Tinto’s milestone achievement in commencing commercial lithium exports from the Rincon project marked a pivotal moment for the global lithium market. Miners are currently contending with the complex interplay of resource scarcity, geopolitical tensions, and the accelerating popularization of EVs. The traditional supply-chain dependencies that have defined battery materials sourcing for decades are being reshaped by new producers launching commercial operations in previously underexplored regions. These developments signify not merely a slight increase in capacity, but a fundamental shift in how critical minerals move from extraction sites to manufacturing hubs, with implications far beyond quarterly production data. Rio Tinto’s commercial lithium exports from the Rincon project reflected its prudent positioning in one of the world’s most fiercely contested mining regions for this mineral. Following the suspension of the Jadar project in Serbia in 2025, the company shipped 200 mt of battery-grade lithium carbonate from Buenos Aires to Shanghai in March 2026, marking the official start of operations at its core South American lithium asset. The timing of this market entry reflected broader industry dynamics across the Lithium Triangle. Argentina’s regulatory environment has increasingly favoured large-scale international mining operations. In addition, the Rincon project is located in Salta Province, placing Rio Tinto within a geographic cluster that contains significant global lithium resources across Argentina, Chile, and Bolivia. [The Geothermal Plant Behind Europe’s Lithium Push] The town of Landau in der Pfalz, near the French-German border, has long been at the heart of the local winemaking industry. The region is also home to the Upper Rhine Valley brine fields, which contain Europe’s largest lithium resources and have now made it a hub for Europe’s push to advance EV development. The planned integrated geothermal-lithium extraction plant forms part of renewable energy producer Vulcan Energy’s ambition to build a carbon-neutral EV supply chain in Europe. The project will use geothermal wells to extract lithium-rich brine from depths of up to 5 kilometers. The high-temperature brine will be pumped to the surface, where lithium will be extracted before being transported to a plant. There, the lithium will be converted through electrolysis into lithium hydroxide monohydrate (LHM). The brine will then be reinjected underground, while LHM will be delivered to offtakers, including automaker Stellantis, which owns automotive brands such as Citroen and Peugeot. [Liontown's Interim Loss Widens as It Bets on a Recovery in Lithium Prices] Australia's Liontown said on Thursday that its loss widened in H1 due to a non-cash accounting charge, and added that it is evaluating potential expansion options for its Kathleen Valley mine as lithium prices are expected to rise. The miner of this raw material used in EV batteries has been seeing an initial price recovery after nearly two years of weakness. Previously, EV adoption was slower than generally expected, resulting in oversupply. Liontown said in its December quarter report that prices improved, with the selling price reaching $900/mt, up 28% from the previous quarter. As its flagship project transitioned to underground mining, the company sold 190,000 mt of spodumene, a lithium raw material, in H1. Source: https://www.investing.com

Ahead of Q2, the tensions across China’s NEV supply chain had already become increasingly visible in February and March. On the one hand, battery output remained resilient, supported by OEM volume targets and the new-model cycle;