Over the past two years, the lithium market has transitioned from a peak of soaring prices to a significant downturn, primarily driven by an influx of new supply and weaker-than-expected demand for electric vehicle (EV) batteries.
In 2022, lithium hydroxide prices on the CME surged to $85,000 per metric ton, but have since plummeted to around $11,930. Similarly, the CME carbonate contract, which began trading in July 2023 at over $40,000, has dropped to $12,850.
Historically, the lithium market has experienced similar boom-and-bust cycles, notably in 2016-2017. However, this time around, expectations for a swift recovery are muted.
Short-term projections suggest that lithium prices will likely remain low as the market adjusts to the surplus. Long-term prospects look more promising due to government incentives driving the shift to electric vehicles, but analysts from BMI, a Fitch Solutions company, do not anticipate a return to the 2022 price levels within the next decade.
Despite the current downturn, there are factors at play that could influence both the lithium and EV sectors positively. The current price slump is partially attributed to unique conditions on both supply and demand fronts.
Oversupply Issues
Lithium producers traditionally view their product as a specialized chemical tailored to specific battery requirements, rather than a generic commodity. Yet, lithium’s price behavior mirrors other commodities: high prices lead to overproduction, followed by periods of low prices to correct the imbalance.
Producers are now scaling back output and postponing expansion plans in response to the new, lower price environment. An additional factor contributing to the glut is the rise of artisanal mining (ASM) in Africa, particularly in Nigeria and Zimbabwe.
According to research from CRU, artisanal miners accounted for nearly two-thirds of Africa’s lithium supply in 2023, almost matching the global market surplus. African shipments of ore and low-grade concentrates made up a quarter of China’s lithium imports in the first quarter of the year. Chinese entities are involved in formalizing artisanal supply from former tin and tantalum mining areas. However, as spodumene ore prices have fallen from over $6,000 per ton to around $1,000, the viability of many artisanal operations is under threat.
Demand Slowdown
On the demand side, expectations for EV sales have been revised downward as the Chinese market matures and growth in Western markets slows. Despite this, the EV sector is not in decline. BNP Paribas forecasts global sales growth of 23% this year, translating to over 18.7 million vehicles.
What has changed is the mix of products. Sales of pure battery electric vehicles are stagnating, while hybrid gas-electric vehicles are gaining popularity, especially in China. Sales of plug-in hybrids surged by 90% year-on-year in April and May, whereas pure electric vehicle sales grew by a modest 10%, according to BNP. This shift benefits the broader energy transition but less so for lithium, as many hybrids use nickel hydride batteries that do not require lithium.
Automakers and governments are adjusting to this trend. Stellantis, for example, has seen hybrid sales grow by 41% year-on-year in Europe and plans to expand its hybrid lineup to 36 models by 2026. The Biden administration has also relaxed its target for converting new vehicles to battery electric by 2032, allowing more hybrid production.
Looking Ahead
The transition to electric vehicles is ongoing, but not as rapidly as previously forecasted. Currently, there is an oversupply of lithium and battery capacity relative to consumer demand.
However, this situation could change. Key factors include the expansion of EV charging infrastructure, which has lagged behind battery manufacturing investments, and the cost of electric vehicles, which remains higher than traditional cars outside China.
Low lithium prices are beneficial for consumers as they lead to reduced battery costs. Battery prices have dropped significantly as lithium and other materials’ prices fall. For instance, the average price of Asian nickel-cobalt-manganese battery cells fell to $90 per kilowatt hour in May, down from a peak of $166 in March 2022.
The seeds for the next upswing in lithium prices are already being planted in the current low-price environment. While it may not reach the heights of 2022, the history of lithium price volatility suggests that future fluctuations are likely.
