Lithium Prices Freefall: Brace for Impact and Uncover Future Predictions

"Slowing Electric Vehicle Sales Cause Steep Decline in Lithium Prices, Raising Concerns Among Investors"

Investors Scratching Their Heads as Lithium Stock Prices Plummet

The decline in lithium stock prices has left many investors puzzled, especially considering the anticipated long-term demand for the resource. So, why is this happening and what does the market outlook look like for 2024/25?

The primary reason for the steep decline in lithium prices can be attributed to the slowing growth of electric vehicle (EV) sales in China, coupled with the broader slowdown in the Chinese economy. As demand remains sluggish at previous pricing levels and supply surpasses demand, prices have inevitably fallen. In China, lithium carbonate prices have experienced a significant decline, dropping from a record high of $81,360 per tonne in November 2022 to $20,782 per tonne this month. This represents a 67% decrease year-on-year and the lowest level in two years. In response to the plummeting prices, Chinese refining companies are taking measures such as cutting production or suspending operations.

The volatility of lithium prices is not a new phenomenon. The limited production of lithium and its status as a specialized commodity make it susceptible to supply disruptions, which can cause significant price fluctuations. Changes in consumer trends, particularly in consumer electronics and EVs, can also swiftly impact demand and supply. Additionally, geopolitical conditions and regulations, as well as advancements in technology, can alter demand dynamics and affect total supply and prices. There is also potential for increased involvement from major oil and gas companies, as evidenced by recent statements from CEOs of Exxon and Chevron expressing interest in the lithium industry. Furthermore, a large private energy company, Lowry, is exploring investments in lithium assets to support the global energy transition.

While China has historically dominated lithium supply from Australia, the rise of Western converters is expected to redirect more Australian supply to Europe and North America. This shift may challenge China’s market dominance as the Western supply chain expands. Canada, for example, is positioning itself to contribute to meeting North American lithium requirements. Li-FT Power (LIFT: LIFFF), a junior Canadian lithium company, is focusing on consolidating and advancing hard rock lithium pegmatite projects in Canada, particularly in known lithium districts. The company is committed to advancing the exploration and development of high-quality lithium assets in the country.

The electrification of the automotive industry, particularly the growing demand for EVs, is a significant driver of strategic investments to secure future lithium supply. Major automakers and lithium producers have already committed over $1 billion in 2023 alone. For instance, GM invested $650 million in Lithium Americas, while Albemarle allocated $110 million to lithium developer Patriot Battery Metals. As the EV market continues to grow, the demand for lithium is expected to outstrip supply, especially as EVs become more mainstream. This presents an opportunity for EV manufacturers to either increase profits per vehicle sold or reduce prices to remain competitive. Lower prices tend to attract more buyers, leading to increased demand for lithium. Consequently, as the current oversupply diminishes, the price of lithium is likely to rebound, highlighting the cyclical nature of the lithium market.

Despite short-term volatility, the long-term forecast for lithium remains positive, particularly in the context of decarbonization efforts and the increasing adoption of EVs. BloombergNEF projects nearly a 5x increase in global lithium demand by the end of the decade, driven by rising battery demand for electric vehicles. However, in the short term, Goldman Sachs maintains a pessimistic outlook for lithium prices in 2024. The brokerage firm projects further declines compared to current levels due to oversupply. Analysts initially predicted a return to market deficit in 2024 but now suggest a longer timeline, with the lithium market potentially bottoming out in 2025. Goldman Sachs estimates the following prices for 2024: lithium carbonate at $13,377 per tonne, lithium hydroxide at $14,263 per tonne, and spodumene 6% at $1,250 per tonne. S&P Global estimates that lithium prices will start to stabilize beginning in 2025 as the surplus narrows down, with prices expected to rise thereafter.

Despite the current challenges in the market, the commitment to global net zero emissions by 2050 is expected to drive continued demand for lithium. The long-term prospects for the industry remain strong, fueled by growing EV adoption and global decarbonization efforts.

Matt Lyons

Matt Lyons

Matt Lyons is the founder of Forestry & Carbon. Matt has over 25 years as a forestry consultant and is invoilved in numerous carbon credit offset projects.

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