Lithium prices will likely drop further on surplus output

Prices of lithium, a key metal used in the batteries of electric vehicles, will likely fall this year despite plunging 80 per cent in 2023, analysts say. 

The Australian Office of the Chief Economist (AOCE) said in its Resources and Energy Quarterly that  lithium prices are likely to decrease as the market enters a period of surplus production. 

“The spot price of spodumene (concentrated ore) is forecast to fall to $2,200 in 2025. The spot price of lithium hydroxide ( a refined lithium product) is forecast to decline to average around $30,000 per tonne in 2025,” AOCE said. 

At 3-year low

Currently, lithium carbonate prices are quoted at a three-year low of 95,500 Chinese yuan a tonne ($13,446), down 80 per cent year-on-year (yoy). According to the Trading Economics website, the lithium ETF traded at 196.12 on Wednesday January, a decline of 24.16 per cent yoy.

According to the website, pessimism over EVs’ sales in China have resulted in slack demand for lithium from battery manufacturers. This has resulted in factories skipping restocking. In 2021 and 2022, firms took advantage of high inventories following supply glut caused by subsidies offered by Beijing. 

The AOCE said in 2022 and early 2023, prices for lithium reached levels well above previous records as the market moved to a large deficit.  

Output cut

In 2023, prices fell significantly as the market swung from deficit to surplus. “The high prices in 2021 and 2022 incentivised more investment in lithium production, resulting in growth in supply outpacing demand,” the Australian Chief Economist Office said.

High-cost producers turned unprofitable and cut output. Australia’s Greenbushes lithium mine - the world’s largest - reported stockpiling of surplus production and flagged the prospect of future output cuts if weakness in prices and demand persists, it said. “However, most producers remain profitable at current prices,” AOCE said. 

According to market research firm Rho Motion, global sales of fully electric and plug-in hybrid vehicles rose 31 per cent in 2023 but they were far lower from the 60 per cent growth witnessed in 2022.

AOCE said, “In the near-term, the demand for lithium is facing headwinds due to slower than expected growth in EV uptake in recent months, especially in the US.”

The caveat

Global financial services firm UBS said EV battery sales plateaued in the US too, limiting lithium bidding as inventories remained high. It projects the next lithium deficit to return only in 2028, a total change in scenario from November 2022 when speculations of persistent shortfalls drove lithium prices to 600,000 CNY ($84,490). 

“Previous investments in increasing supply may drive global carbonate equivalent supply to jump by 40 per cent in 2024, deepening the ongoing surplus,” it said.

AOCE, however, had a caveat. It said in terms of risks for the price forecasts, there is an unusually high degree of uncertainty. “The lithium market has undergone significant structural change in recent years due to new producers entering the market and the rapid pace of EV demand growth,” it said. 

Echoing the Australian Office of the Chief Economist, the Australian resources and investment, pointing out at Kali Metals’ initial public offering to raise $15 million, said the bigwigs of the lithium industry are confident that the important battery metal will bounce back in a big way.

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