Lithium is inexpensive and could further fall
The prices of lithium are currently at multiyear lows in a market that is flooded with the battery material, and it seems unlikely that they have reached their lowest point yet. In the small yet rapidly expanding market, the global production of lithium has been driven out of sync with demand due to the race to construct new mines for the clean-energy transition, which is projected to require a substantial amount of this resource.
Consumers have been slower to adopt electric vehicles, despite the importance of lithium-ion batteries in powering them. This has surprised investors and auto executives who had higher expectations. Instead of reducing lithium production to address the decrease in demand, miners have chosen to weather the economic downturn by reducing expenses and delaying new projects.
This week, a widely observed lithium price from Benchmark Mineral Intelligence reached its lowest point since the market-data company started publishing weekly prices in early 2023. The price of Asia spot lithium carbonate dropped to $12,500 per metric ton, marking a 3.8% decrease compared to the previous week. Last year, the price was $43,000 per ton, which seemed like a great deal compared to January 2023, when it reached $76,000 per ton.
According to other benchmark prices, the market is currently at a level that hasn’t been seen in three years. The decline in lithium’s value comes after a period of significant growth, during which the relatively obscure commodity reached unprecedented prices and led to increased investments in mining. The pullback is a positive development for both consumers and automakers as it helps to lower battery costs. For miners, the situation is quite different. “It’s incredibly challenging in the current market,” remarked Tony Ottaviano, CEO of Liontown Resources, an Australian lithium company.
For companies such as Liontown, there may be more challenges to face before any improvements are seen. China’s stockpiles of lithium, which it controls the refining and battery-cell manufacturing of, are currently excessive and continuing to increase. According to analysts at Citi, there is expected to be a 14% increase in global lithium demand this year, while supply is projected to rise by 18%.
In China’s Qinghai Province, the extraction of lithium from salt lakes is currently experiencing a seasonal increase in output, which is putting additional pressure on prices. According to Daisy Jennings-Gray, head of prices at Benchmark Mineral Intelligence, the evaporation rates at the brine ponds are more favorable during the warmer months.
Western Australia is set to see Liontown’s new mine begin production of spodumene, a raw form of lithium, by the end of this month. Buyers are seeking a variety of supply sources, according to Liontown’s Ottaviano. The miner recently reached an agreement with battery maker LG Energy Solution to explore the possibility of collaborating on a refinery for manufacturing battery-grade lithium. In recent years, the fragility of supply chains has been exposed by war, the pandemic, and tensions between the West and China. Several lithium companies have established supply agreements with battery producers or automakers. Liontown has established sales agreements with Tesla, Ford, and LG Energy Solution.
However, analysts point out that expectations for EV sales, especially in the U.S. and Europe, have been dampened by factors such as inflation, higher interest rates, and concerns about access to charging stations. Auto analysts at Citi have revised their EV adoption forecasts downward on two occasions within the last nine months.
According to Jennings-Gray, certain lithium companies are starting to experience financial pressure. Lake Resources, a small Australia-listed developer, announced on Monday its plans to cut costs and explore options to sell some of its assets in Argentina’s lithium-rich Jujuy and Catamarca provinces. The company stated that due to the current market conditions, the timeline for finding a partner for its flagship lithium project is expected to be extended beyond initial projections.
Several other companies, such as Albemarle based in Charlotte, N.C., have already made announcements regarding layoffs and investment delays. Experts are predicting a forthcoming period of even-lower prices, which they argue is necessary to rebalance the market. Analysts from Citi predict that there could be a further decline of 15% to 20% in lithium futures. Prices may experience a potential rebound in the coming year, particularly if there is a resurgence in confidence surrounding electric cars, according to experts. Analysts at Morgan Stanley have indicated that a potential bottom for lithium prices is within reach, as mentioned in a recent note to clients. “However, we have not reached that point yet.”
