Commodities

After surging by over 400% y-o-y, lithium prices may rise further on supply shortage

Subramani Ra Mancombu Chennai | Updated on November 15, 2021

A file photo of lithium ion battery seen at a store in Singapore.   -  REUTERS

Analysts say ‘rally beyond expectations’ could hit adoption of EVs

With demand for electric vehicles (EV) battery materials rising sharply against supplies that are well short, prices of lithium, a key ingredient for EV batteries, are set to increase further despite having soared 400 per cent year-on-year.

The skyrocketing of lithium prices will likely to slow down people’s adoption of EVs, analysts fear.

Projecting a further rise in prices, UK-based Data analytics and consulting firm Global Data said in its “Thematic Research: Electric vehicle batteries (2021)’’, that one of the core challenges for EV adoption is keeping the cost of a lithium-ion battery as low as possible.

Prices of lithium carbonate that were averaging at $10,000 a tonne last year would rise to $14,000 by 2024, it said. According to the Trading Economics Website, lithium carbonate is currently quoted at 195,000 yuan ($30,559), up 401 per cent year-on-year and 320 per cent since the beginning of this year.

Price outlook

Fitch Solutions Country Risk and Industry Research (FSCRIR) said in its note that lithium prices have rallied beyond its expectations, forcing the agency to raise its price outlook for the battery material.

“We are, therefore, significantly revising up our carbonate and hydroxide lithium price forecasts from 2021 to 2026. We now see carbonate prices averaging $18,050/tonne in 2021, up 183 per cent year-on-year ($13,450 previously), and averaging $21,000 in 2022, up 16.3 per cent year-on-year ($15,025 previously) ... We see significant upside risks to our 2022 price forecasts,” FSCRIR said.

Global Data thematic analyst Daniel Clarke said: “The rising price of lithium demonstrates what many in the industry have warned about for some time: the growing divergence between supply and demand for lithium. Ultimately, this will lead to an increase in the price of EVs, as automakers pass the cost onto the consumer.”

Bank of America recently said in its research report that the global electric vehicle industry faces an imminent threat that battery supply could run out as early as 2025.

Batteries make up a significant portion of an EV’s total costs, though the price of a lithium-ion battery pack has dropped nearly 90 per cent since 2010.

Rising EV sales

Fitch Solutions said global EV sales are projected to be higher this year, resulting in an increase in lithium demand estimate.

“In the very near term, prices look set to continue heading higher, as the lithium market remains very tight and there is little downside for prices. Demand will keep outstripping supply for now, for both raw material (spodumene) and chemicals (carbonate and hydroxide). Prices could stabilize later on in 2022 following the impressive rally recorded in 2021, but we still see them averaging higher on a year-on-year basis…,” it said.

The lithium market could tighten further next year as global surplus could shrink. The momentum behind the decarbonization is robust, keeping the EV sector buoyant, and this will result in strong demand, it said.

However, EV sales could decelerate next year since recovery this year has been sharp. Still, EV sales could expand by 40 per cent year-on-year - stronger than pre-Covid growth, Fitch Solutions said, quoting its automobile team which sees an 2.2 million EV cars addition every year.

Chinese domination

Fitch Solutions said global production of lithium carbonate equivalent will increase 18 per cent next year.

Global Data’s Clarke said China - which dominates the lithium-Ion battery supply chain in terms of battery cells, cathode and anode production, and chemical refining - will continue its domination for another five years. This will be despite the best efforts of the US or the European Union.

The recent episode of UK chemical firm Johnson Matthey quitting the battery material business for the automotive industry is seen as one of the strong reasons for this. Johnson Matthey said it was shutting its Poland operations and dropping Finland plans citing growing competition as a major reason.

“The potential returns from our battery materials business will not be sufficient to justify further investment,”the UK company said in a statement. It plans to sell all or, if not, a part of its battery business.

“The recent decision by Johnson Mathey to withdraw from UK battery manufacturing demonstrates just how hard building a supply chain can be. Western economies are quite far behind China already, with the country having held an 80.5 per cent share of lithium-ion battery capacity in 2020,” Clarke said.

Fitch Solutions said global supply growth will accelerate from 2023 onwards and demand growth will continue to be buoyant. Battery manufacturing locations will drive geographical demand for lithium, it said

“China will remain the largest battery manufacturer by far for the time being (accounting for about 80 per cent of installed manufacturing capacity as of 2020), but existing other manufacturers including Japan, South Korea, the US, Hungary will likely record a rise in battery manufacturing,” the rating agency said.

Relatively new entrants will also establish themselves as increasingly important manufacturers including Germany, Poland, Sweden, France, the UK, Thailand and Indonesia, it said.

Published on November 15, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.

You May Also Like