At least a couple of analyst firms are bearish in their outlook on lithium carbonate, used in producing cathodes for electric vehicles (EV) batteries, after the chemical’s price dropped by about 20 per cent from the peak witnessed in November 2022.
Prices of lithium carbonate, one of the two compounds employed for making cathodes with lithium hydroxide being the other, are currently ruling at CNY 480,500 ($70,890) a tonne from CNY 600,000 ($88,612) in November, data from the Trading Economics website show.
Though lithium carbonate prices are 46 per cent higher than the year-ago period, they are down 13 per cent during the past month. Signs of supply rising and demand dropping are the reasons for this fall.
Chinese EV sales drop
Trading Economics said Chinese production increased 89 per cent year-on-year in December, despite some smelters curbing production.
Another bearish factor is the Australian government’s commodity forecaster, the Office of the Chief Economist (OCE), estimating global production of the chemical to rise 32 per cent from 2022 to 9,15,000 tonnes.
A third factor for the decline in prices is fears over Chinese EV sales dropping after Beijing has discontinued subsidies for the vehicles. Until the current bearish trend, which has dragged prices to nearly a five-month now, the chemical had surged 1,000 per cent since 2020.
A Platts’ Battery Metals Outlook Survey of 26 Asian market participants came up with a conservative view of lithium prices. Over half of the companies surveyed expect Chinese lithium prices to average below CNY 500,000 this year.
Different view
Global investment banker Goldman Sachs, in its outlook, said overcapacity and slowing EV sales could soon slow the lithium market. This is despite the banker cutting its estimate of 76,000 tonnes surplus in 2023.
Since June last year, Goldman Sachs has been warning that lithium’s bull market for the battery metal was probably over due to excess supply.
Another investment bank Credit Suisse said speculation was rife in China, one of the major cathode producers, may have cut production targets and some firms in the communist nation were forecasting the market to soften later this year.
But Switzerland’s IG Bank, a unit of forex provide IG Group, differed with these views. It said the expected Chinese slowdown — where one in three new cars sold now is an EV — is yet to materialise. “And with lithium mines requiring circa 10 years to begin producing, the lithium price could surge yet higher in 2023,” it said.
Research agency Fitch Solutions Country Risk and Industry Research said lithium prices would remain elevated on “accelerating demand” in 2023 compared with 2021 and lithium carbonate prices would rule a $55,000 a tonne (CNY 372,267).
40% demand growth
Fitch Solution said it expects at least 11 projects to begin production in 2023 while demand continues to rise. “As a result, we forecast the market’s supply deficit will widen to 3,29,000 tonnes in 2023,” it said.
Benchmark Mineral Intelligence, which provides market intelligence for lithium, said demand for the battery material will grow about 40 per cent in 2023 against 2022.
Its senior analysts Daisy Jennings-Gray said demand from China is still seen rising the fastest, but growth is set to pick up considerably in the rest of Asia. “Europe and North America will also notice a step up in demand as their downstream battery supply chains begin to develop,” she said.
Investors.com said an unknown factor in the lithium market would be Argentina, Chile and Bolivia’s plans to form a cartel like Organisation of the Petroleum Exporting Countries. If these countries, which hold 58 per cent of the world’s lithium deposits, form such a cartel, then they could control its prices. These countries are trying to rope in Australia, the top lithium producer but are yet to get a favourable response.
According to the Australian government chief economist office, the supply gap in lithium will persist until 2024 but the gap will be closed considerably in view of new projects coming up. It has projected lithium production to rise to 1,087,000 tonnes in 2024.