Lithium, a key material used in the production of cathodes for electric vehicle (EV) batteries, has turned out to be one of the worst performing commodities this year with its prices crashing by over 55 per cent.
Prices of lithium carbonate, which is used in making the cathode, have dropped to 2,05,000-2,46,000 Chinese yuan ($29,673.64-$35,716.37) a tonne, a far cry from the highs of 6,00,000 yuan ($87,113.10) seen in November 2022.
At 15-month low
According to Shanghai Metal Market (SMM) News, lithium carbonate dropped 12,500 yuan ($1,814.86) a tonne on Monday to 2,05,000-2,46,000 yuan. Prices of lithium hydroxide, the other lithium material used in making cathode for EV batteries, dropped 9,500 yuan ($1,379.29) a tonne to 3,18,000-328,000 ($46,169.94-$47,621.83).
Benchmark Mineral Intelligence index for lithium has dropped 9 per cent year-to-date (YTD) to 945.7. The carbonate index has declined by 22.3 per cent to 940.2 and hydroxide index by 15.5 per cent to 937.
Lithium carbonate prices have crashed by 55 per cent year YTD, the lowest since January 2022, due to steady production and a drop in demand besides forecast of surplus supply this year.
China ends sops
One of the major reasons for the fall in lithium prices is China halting incentives for purchases of new energy vehicles. The incentives led to overproduction of EV batteries last year to take advantage of the Chinese subsidies.
This resulted in high inventories that were unsustainable and the first trigger for the current crash came when China’s Contemporary Amperex Technology, world’s biggest EV battery maker, announced plans to sell batteries at a hefty discount to spot prices.
The other reason for the fall in prices was the demand for EV slowing in China ahead of Beijing’s plans to stop subsidising the new energy vehicles industry.
Prices looking ‘elevated’
More fall is probably in store for lithium as Credit Suisse, which along with Goldman Sachs was the first to paint a bearish picture for the battery material, saying its current price forecast of $43,000 a tonne ”is looking elevated”.
The bearish sentiment was reflected in a statement by Wang Yu, CEO of Farasis Energy, an advanced lithium-ion battery technology company, that lithium carbonate prices may drop below 1,00,000 yuan ($14,519.06) a tonne.
A China lithium industry white paper said lithium carbonate capacity was 6,00,000 tonnes in 2022 with lithium carbonate output rising by 32.5 per cent to 3,95,200 tonnes compared with 2021.
EV sales in Jan halve
Rystad Energy, an independent research and business intelligence company, said the global EV market is reeling from one of the most dramatic collapses in monthly sales to date. It said 6,72,000 units were sold in January, almost half of December 2022 sales and a mere 3 per cent year-on-year increase over January 2022. The EV market share among all passenger car sales tumbled to 14 per cent in January from 23 per cent in December.
Goldman Sachs reiterated its bearish outlook for lithium saying it is set for a further fall as recovery in EV sales and China reopening its economy may not be sufficient to consume the supply forecast for the market this year.
Lithium production is expected to increase this year with Australia and China likely to add 1,73,000 and 75,000 tonnes, respectively, of lithium carbon equivalent (LCE).
EV sales will grow to 2,00,000 tonnes LCE but there will be a 94,000 tonnes drop in inventory demand, it said.
Good for India
MS Chugh, Founder & Chairman of Aponyx Electric Vehicles,said the cost of manufacturing lithium batteries and finished vehicles will decrease as a consequence. “I predict that as a result, cell prices will fall by 20–30 per cent, resulting in an 8–15 per cent decrease in EV costs in upcoming years,” he said.
Harin Kanani, MD, Neogen Chemicals Ltd, which has been manufacturing speciality lithium products for the last several decades and importing it from the world’s largest producers, said overall, in the next two years lithium prices are expected to be volatile till revised demand-supply stabilised. “This is considering the major transition to EV supply before settling at a new long-term average price,” he said.
The Australian Office of Chief Economist forecast on Monday that lithium exports will more than triple this year and prices of spodumene, a lithium source, are estimated to rise to an average $4,350 a tonne this year from an average of $3,110 a tonne in 2022.
Prices should moderate to $2,760 in 2024 and $2,440 in 2028, it said, adding that lithium hydroxide prices are expected to increase from $44,090 a tonne in 2022 to $61,520 in 2023.