Prices of lithium, a key material used in the production of cathodes for electric vehicle (EV) batteries, rebounded over 65 per cent in the past month on a recovery in demand for  EV batteries after having plunged to a 19-month low in the last week of April.

According to China’s SMM (Shanghai Metal Markets) data, prices of lithium carbonate 99.5 per cent battery grade increased from 180,000 Chinese yuan (CNY) ($25,328.92) a tonne on May 3 to 300,500 CNY ($42,285.23) on June 1. On the other hand, prices of lithium hydroxide 56.5 per cent battery grade were up from 1,85,000 CNY ($26,032.50) to 2,90,000 CNY ($40,807.71) during the period.  On April 24, prices of lithium carbonate had slid to 1,65,500 CNY (23,288.54). 

Still down y-o-y

Lithium carbonate and lithium hydroxide are used in the lithium-ion batteries that dominate the EV market in China. Despite the surge, lithium prices are 36.5 per cent lower year-on-year (y-o-y).

Chinese plug-in EV sales topped 0.5 million in April, up 93 per cent y-o-y with the total for 2023 being 1.9 million. New energy vehicle (NEV) sales and output in China soared by 110 per cent y-o-y in April, trimming concerns about poor demand levels at the start of the year.

Lithium prices dropped in the first quarter as a drop in demand complicated oversupply of batteries after producers took advantage of Chinese subsidies to increase production at the end of 2022. 

Reasons for uptrend

Analysts cited five reasons for the uptrend in lithium prices. The first reason was the adoption of EV gathering pace as is evident from the trends in the Chinese market. The second is that supply challenges are unable to meet the rising, mainly with sales of EVs picking up.

The third factor is the geopolitical risks arising out of the Ukraine war, while delays in lithium mining projects and market deficit are other issues.

A report by CITIC Securities, one of the largest Chinese conglomerates, said a contraction of upstream supply and downstream stockpiling lead to a rebound in lithium prices.

Labour shortage and tight transportation restricted lithium ore production in Australia, while sales of lithium concentrate in Australia declined, it said. 

The Office of  Chief Economist, Australia, said in a quarterly report that global lithium demand continues to grow rapidly, driven by surging demand for electric vehicle (EV) batteries. Demand for lithium batteries, which accounted for almost 80 per cent of all lithium used in 2022, is expected to reach 90 per cent by 2028.  

Demand seen up

It said world output, which was 7,37,000 tonnes LCE (lithium carbonate equivalent) in 2022,  is estimated to reach 9,64,000 tonnes in 2023. “This rapid growth is forecast to be met by gains in output by Australia, Chile and Argentina. Over the 5-year outlook, key sources of added supply include China, Brazil, Canada, DRC, Mali and Zimbabwe,” it said. 

Lithium prices are expected to pick up over the latter half of the 5-year outlook period to 2028, as the additional global lithium supply is absorbed by rising global demand. “Demand will rise as countries look towards their 2030 emissions targets, and as EV market penetration accelerates in Europe, the US and other advanced economies,” it said.

The rise in prices comes after Credit Suisse and Goldman Sachs projected downside risks to lithium price. Goldman Sachs forecast the average lithium carbonate price at $30,011 a tonne this year.

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