The lithium market is encountering significant hurdles, as highlighted in the S&P Global Commodity Insights report for August 2024. The report delves into the intricate dynamics between global macroeconomic trends, evolving demand patterns in the electric vehicle (EV) sector, and the consequent impacts on the supply and pricing of this vital battery metal.
The global plug-in electric vehicle (PEV) market is witnessing notable fluctuations, with a 2.2% sales decrease across major markets in July 2024 according to S&P Global data. This decline is attributed to various factors, including weakening consumer confidence, a seasonal demand lull in the Northern Hemisphere, and higher tariffs, particularly affecting the European market where sales plummeted by 29.9%. This downturn in Europe mirrors broader macroeconomic uncertainties, such as worries about a potential U.S. recession and sluggishness in China’s economy.
China remains a dominant player in the PEV market, with PEVs constituting 51.1% of all new car sales in July, marking a record penetration rate. However, the growth in China’s PEV market is facing challenges, as the share of battery electric vehicles (BEVs) within the sales mix is declining. BEVs, which use larger batteries and consume more metals, represented only 54.9% of China’s PEV sales in July, down from 67.4% a year earlier. Additionally, Chinese automakers are engaging in intense price competition to sustain market share amidst weak domestic demand and low consumer confidence.
The global slowdown in PEV adoption is significantly impacting the battery production sector, leading to the cancellation of several high-profile projects in the U.S. and Europe. General Motors Co. has suspended the construction of its third battery plant in Michigan, a joint venture with LG Energy Solution Ltd., while Umicore SA has halted the construction of a battery materials plant in Ontario and postponed investments in battery recycling plants in Europe. These cancellations are due to delays in customer contracted volumes, pushed back by at least 18 months.
The imposition of higher tariffs in various regions has further complicated the global PEV market outlook. Tariffs in the EU and U.S., aimed at encouraging local production and reducing dependence on Chinese BEV imports, have dampened short-term sales potential and increased costs for consumers. China’s BEV exports have also been affected, declining for a second consecutive month in June 2024, with a 29.1% drop month-over-month.
With the slowing trend in plug-in EVs, the lithium market is facing renewed supply challenges, leading to plummeting prices. The Platts-assessed spodumene concentrate FOB Australia price dropped by 15.6% in August, hitting $760 per metric ton, the lowest level since June 2021. This significant price drop has prompted supply cutbacks, with producers struggling to maintain profitability.
For instance, Albemarle Corp. announced it would operate only one of its two lithium hydroxide processing lines at its Kemerton refinery in Australia, removing 22,000 metric tons of lithium carbonate equivalent capacity from the market. The company also suspended work on expanding production capabilities and deferred investments in new projects in Canada and Argentina.
The decline in lithium prices is a result of multiple factors, including growing demand headwinds and a persistent market surplus. Despite mild supply cuts in the March quarter, ongoing project ramp-ups by emerging suppliers in Zimbabwe, Argentina, and Brazil have contributed to the oversupply. July export data from major lithium-producing countries indicates a month-over-month drop in seaborne lithium and cobalt supply as producers react to the market surplus.
The lithium carbonate CIF Asia price also fell by 9.8% in August, reaching $11,000 per metric ton, the lowest level since April 2021. At these price levels, many lithium producers are likely to reduce output due to the economic unviability of continued production. Merchant lithium carbonate refineries, in particular, are expected to scale back operations due to negative margins in August, in contrast to the small positive margins seen in July.
With lithium and cobalt prices hitting new multi-year lows in August, S&P Global Commodity Insights has revised its 2024 price forecasts downward. The forecast for lithium carbonate CIF Asia has been reduced by 1.1% to $12,627 per metric ton, reflecting ongoing challenges in the market, including oversupply and weak demand. These adjustments highlight the significant pressures facing the lithium and other electric metal markets, where producers are grappling with reduced profitability and market uncertainties.
The downgrades in price forecasts reflect a cautious outlook for these critical battery metals as the industry navigates a complex economic environment.
