Prices of electric vehicles (EV) battery raw material lithium have dropped over 20 per cent this year but the demand-supply balance may help them stabilise, say analysts.
According to the Trading Economics Website, lithium prices have declined by 21,500 Chinese yuan ($3,022) a tonne since the start of 2024. The commodity had soared to a record high of 5.75 million yuan ($808,299) in December 2022.
On Monday, the price of lithium carbonate on the Guangzhou Futures Exchange (Gfex) ended at 75,200 yuan ($10,571.5) a tonne, down by 3,050 yuan. Last week, the prices fluctuated between 73,000 and 78,000 yuan.
Rebound on correction
Lithium carbonate (99.5 per cent battery-grade) was quoted at 74,650 yuan a tonne on Monday, while lithium hydroxide (56.5 per cent battery-grade) was quoted at 71,650 yuan. Lithium carbonate and lithium hydroxide are refined lithium products.
Spodumene and sub-surface brines are sources of lithium used in cathodes of lithium-ion batteries. Lithium hydroxide is obtained from lithium carbonate and is an EV battery material.
Shanghai Metal Markets (SMM) News said the rate of decline in lithium prices has slowed down recently. Prices rebounded on supply-demand balance, while prices edged up last week on correction.
The Australian Office of the Chief Economist (AOCE) said the rise in global lithium supply will see the lithium market remain in surplus. “Chinese lithium lepidolite production has seen only modest declines despite falls in prices, and there are sizeable project pipelines in Australia and among emerging producers such as Argentina and Zimbabwe,” it said.
Overcapacity
Lepidolite is the most abundant lithium-bearing mineral and is a secondary source of the battery raw material.
The AOCE said since the second half of 2023, slowing growth in EV sales resulted in lithium demand growth falling below expectations. The wave of investment in lithium production spurred on by the high prices of 2022 is bearing fruit. “As a result, the lithium sector overcapacity has emerged.” it said.
In August, traders’ inventories depleted as cathode companies replenished their lithium stocks. On the other hand, producers are holding off on selling in the spot market at lower prices, preventing traders from building inventories.
The rebound in prices last week did not witness any panic about cathode manufacturing units. They have ample lithium carbonate long-term contract quantities for their regular production, SMM News said.
Abundant supply
The current oversupply structure has not reversed totally, making cathode manufacturers focus on demand-based restocking still for spot purchases of lithium carbonate. This, in part, was responsible for prices declining again during last weekend.
Any rise in the battery raw material price will result in producers focusing on production and hedging their positions. This, in turn, could affect any hopes of a drop in production, resulting in prices declining more sharply.
AOCE said prices are largely driven by lithium demand, which faces headwinds over H2 2024 due to weak growth in EV demand. “The market is expected to remain in surplus, as low prices have yet to result in sufficient supply to exit the market,” it said.
China’s lithium spodumene price is forecast to remain weak over H2 2024, averaging $1,100 a tonne over the year, before picking up to $1,300 a tonne by 2026, said the Australian Chief Economist Office.
EV sales up 20%
According to reports, EV sales in the first half of 2023 increased by 20 per cent compared with the year-ago period.
Research agency BMI, a unit of Fitch Solutions, said in 2024-2025 lithium prices are expected to remain below 2022-2023 highs, owing to a rapidly expanding global lithium supply that has pushed the lithium market into surplus. “We forecast Chinese lithium carbonate 99.5 per cent to average $15,500/tonne in 2024 and Chinese lithium hydroxide monohydrate 56.5 per cent at $14,000/tonne in 2024,” said BMI in its outlook.