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Lithium prices could fall further as supply increases

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Prices of lithium, a key metal used in electric vehicle (EV) batteries, are likely to be lower than the highs seen in 2022-23 as rising supplies create a surplus in the market, analysts said.

Critical metals prices have fallen more than 5% since the beginning of 2024. Battery-grade lithium carbonate is currently priced at CNY91,323 ($12,574.42) per tonne, while battery-grade lithium hydroxide is priced at CNY83,030 ($11,432.54) per tonne.

70% decrease from the previous year

Lithium prices fell 70% year-on-year before soaring to 575,000 yuan ($79,000) per tonne in December 2022. Lithium carbonate and lithium hydroxide are refined lithium products.

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Research firm BMI, part of Fitch Solutions, said lithium prices in 2024-2025 are expected to be below the highs of 2022-2023 as global lithium supply expands rapidly, creating an oversupply in the lithium market. “We are 99.5% forecast that Chinese lithium carbonate will average $15,500/tonne in 2024 and $20,000/tonne in 2025 ($72,081/tonne in 2022 and $35,956/tonne in 2023), while Chinese lithium hydroxide monohydrate is 56.5% forecast to average $14,000/tonne in 2024 and $20,500/tonne in 2025 ($69,496/tonne in 2022 and $38,324/tonne in 2023),” BMI said in its outlook.

China’s activities are being restrained

In its Commodity Outlook, the World Bank said lithium prices fell 18% quarter-on-quarter. “The price decline is partly due to weak demand, particularly for EVs, and weaker activity in China, but also due to a continued rise in supply in anticipation of future demand from the energy transition,” it said.

The Australian Office of the Chief Economist (AOCE) said lithium prices are likely to stabilise as high-cost producers exit the market. The office, which forecast prices for the next few years, said there was significant uncertainty in the forecast “due to new producers entering the market around the world and uneven growth in EV demand”.

AOCE said lithium prices may fluctuate over the forecast period (through 2028) due to the pace of EV adoption and other emerging applications, changes in battery technology, and unexpected developments in government policy. “Lower prices in 2023 have led to reduced production, particularly from some higher-cost producers, which is likely to support a gradual recovery in lithium prices through 2024 and 2025,” AOCE said.

Ongoing projects

The International Energy Agency (IEA) said new supply growth has outpaced demand growth over the past two years, from Africa to Indonesia to China. “This, combined with excess inventory in downstream sectors (battery cells, cathodes, etc.) and a correction of overly sharp price increases in 2021-2022, has put downward pressure on prices,” the IEA said.

BMI said lithium production will increase significantly in 2023, spurred by previously high prices and weaker-than-expected demand, pushing the market into oversupply. Prices will fall through 2023, returning to levels before the 2021 upswing.

AOCE said global lithium supply is forecast to grow roughly at the same pace as demand, with large projects planned not only among large producers (such as Australia and China) but also among new and emerging producers (such as Argentina and Zimbabwe).

BMI agreed that increased lithium supply from these producers will likely limit further price increases, predicting the lithium market will remain oversupplied through 2024 and 2025. However, it said demand for lithium chemicals used in EV batteries will grow.

Long-term outlook

Xuan-Ce Wang, managing director, chief scientist and professor of mineral systems and geology, posted on LinkedIn that the second quarter of 2024 will see significant strategic moves and investments in the lithium market, with varying degrees of progress in different regions. While some projects face challenges, others are on track to ramp up production and expand capacity, he said.

The IEA said expected mining supply from announced projects would meet only 50% of lithium demand.

In the longer term, lithium prices are likely to be influenced by innovations in battery chemistry, such as the adoption of lithium-free or reduced-lithium batteries, according to BMI.

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AOCE agreed that alternative battery chemistries will put pressure on lithium-ion EV batteries from 2026 onwards, potentially causing lithium prices to decline over the remaining forecast period.

Moreover, faster-than-expected advances in battery recycling technology could significantly expand sustainable lithium supplies, posing a downside risk to lithium prices, BMI noted.

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