Lithium prices reportedly rebounded following a substantial 70% drop as electric vehicle demand continued to expand.
As we already know, lithium is among the key materials used in electric vehicle batteries. Its prices suddenly declined earlier this year as EV demand weakened when the Chinese government cut its EV-related subsidies.
Finally, the lithium market is now recovering, as noted by experts like Morgan Stanley. It is propelled by the increasing demand for clean energy vehicles as governments worldwide strive to meet their carbon emission goals.
Sequoia Wealth’s senior private wealth advisor Shane Langham shared the same thought, saying that the EV production ramp-up mainly influences growing demand for battery-grade lithium or lithium carbonate. He also indicated that this substantial growth even excludes large-scale batteries for electricity grids or renewable energy storage from solar and wind.
“I don’t see lithium as a one-off flash in the pan. The demand for lithium carbonate, or battery-grade lithium, is increasing at a rapid rate because of the rate of EV production increases.
That doesn’t even touch on the big batteries used to support electricity grids or to store renewable electricity generated by solar or wind or the like. When the supply and demand equation is so lopsided, where demand is multiples the size of the supply, the price can do only one thing, and that is rise.
Given we have seen the price for lithium drop 72 per cent [at the April low] from the high in November 2022, this, to me, looks like not just a good opportunity but a great opportunity to buy into weakness for a very bright future to 2030 and beyond.”
Shane Langham, Sequoia Wealth’s senior private wealth advisor
Spot prices for carbonate have apparently increased 30% from their lows, while hydroxide prices rebounded by 20% due to the strong EV battery output worldwide. It must be noted that most power battery production is China-based, where most trade occurs.
Better sentiment
According to Australia’s Office of the Chief Economist (OCE), batteries accounted for approximately 80% of all lithium consumption in 2022. As more citizens join the EV adoption, battery share is projected to increase to 90% by 2028.
Datt Capital founder Emanuel Datt claims that high lithium price growth in 2022 is due to increased investor confidence in EV uptake and pro-EV government legislation like President Joe Biden’s Inflation Reduction Act.
“We expect the lithium sector to remain stable with upside potential given the widespread government support for the energy transition.
Greater end-demand for EVs and alternative energy storage solutions means greater demand for batteries and battery materials, with commensurate pressure on supply.”
Datt Capital founder Emanuel Datt
OCE estimates that lithium demand will likely outpace supply by 2027 when supply catches up, per the report. On the other hand, Australian lithium export revenue is anticipated to triple by June 30.
Additionally, S&P Global Market Intelligence forecasts that there would be a battery-grade lithium shortage, which would drive prices above $40,000 a tonne.
Janus Henderson’s Senior Portfolio Manager, Darko Kuzmanovic, predicts that EV uptake will substantially expand in the next ten years. By 2030, the International Energy Agency (IEA) anticipates EV sales will represent more than 40% of the auto market.
“This is a structural and long-dated, decades long theme, that has just begun. Over the last five to six years, lithium demand has fluctuated at a compound annual growth rate (CAGR) of 25 per cent per annum. This is expected to continue until EVs become the dominant type of vehicle.”
Darko Kuzmanovic, Janus Henderson’s Senior Portfolio Manager
Electric automakers buy-in
Therefore, leading EV makers, including Ford, GM, Stellantis, and Tesla, have been actively backing lithium projects to ensure supply for upcoming production plans.
However, Perennial Strategic Natural Resources Fund’s Resources Fund Manager Sam Berridge claims that the lithium market may need more time to fully rebound, given the high supply volume after lofty price levels.
“There is certainly enough lithium to go around. While demand exceeded supply in recent times, high lithium prices have led to a flood of capital into the space, which in turn has funded the mining industry to an extent that global production has roughly doubled over the last two years. The impact of which has seen lithium prices drop by over 60 per cent in the last five months. There are few better examples of the truism: nothing cures high prices like high prices. Looking forward, lithium prices now are at a level where the highest cost producers are losing money. Demand growth remains strong, so we’re likely to see a period of price stability after such a sharp fall.”
Sam Berridge, Perennial Strategic Natural Resources Fund’s Resources Fund Manager
See Also:
- Chinese Lithium mining firm Gochin reportedly plans to invest $10B in Afghanistan
- CATL records new high in its Q1 net profit growth as lithium prices drop
- General Motors leads $50 million funding round in EnergyX for lithium supply in the US
- Mercedes-Benz to secure critical minerals with Rock Tech’s first lithium refinery in Germany
- China: Lithium prices suffered the largest decline in 2023
Nonetheless, demand expansion is still strong and may stabilize prices following the recent fall.
