Surplus in Lithium Market Leads to Decline in Prices

The prices of lithium, a critical metal used in electric vehicle (EV) batteries, are expected to remain below the highs seen in 2022-23 due to a surplus in supply. Analysts note that the market has been oversupplied, leading to a decrease in prices of over 5% since the start of 2024. Currently, battery-grade lithium carbonate is priced at 91,323 Chinese yuan ($12,574.42) per tonne, and lithium hydroxide at 83,030 yuan ($11,432.54) per tonne.

Prices have plummeted by 70% year-on-year, having reached 0.575 million yuan ($79,000) per tonne in December 2022. Research agency BMI, a unit of Fitch Solutions, predicts that lithium prices will remain below the highs of 2022-2023 due to the rapid expansion of global supply. BMI forecasts that Chinese lithium carbonate will average $15,500 per tonne in 2024 and $20,000 per tonne in 2025, while lithium hydroxide is expected to average $14,000 per tonne in 2024 and $20,500 per tonne in 2025.

The World Bank's Commodity Outlook reported an 18% quarter-on-quarter decline in lithium prices, driven by weak demand, especially for EVs, and increased supply. The Australian Office of the Chief Economist (AOCE) anticipates that lithium prices will stabilize as high-cost producers exit the market. However, AOCE notes a high degree of uncertainty in forecasts due to new market entrants and uneven EV demand growth trends.

The International Energy Agency (IEA) pointed out that the increase in supply from Africa, Indonesia, and China over the past two years has outpaced demand growth, leading to downward pressure on prices. An inventory overhang in the downstream sector, such as battery cells and cathodes, has further contributed to the price decline.

BMI attributes the significant rise in lithium production in 2023 to previously elevated prices, resulting in a market surplus. This surplus, combined with weaker-than-expected demand, has brought prices back to pre-2021 levels. AOCE projects that global lithium supply will generally keep pace with rising demand, supported by substantial project pipelines in major producing countries like Australia and China, as well as emerging producers like Argentina and Zimbabwe.

In the longer term, innovations in battery chemistries, including those that reduce or eliminate the need for lithium, may impact prices. AOCE suggests that from 2026, alternate battery chemistries could pressure lithium-ion EV batteries, potentially lowering lithium prices.

Additionally, advancements in battery recycling technology could significantly expand sustainable lithium supply, posing further downside risks to prices.

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