The lithium market has experienced a dramatic shift from boom to bust over the last two years, driven by an overwhelming surge in supply and unexpectedly weak demand for electric vehicle (EV) batteries. The CME contract for lithium hydroxide has plummeted from a peak of $85,000 per metric ton in 2022 to $11,930, while the CME carbonate contract has fallen from over $40,000 when it started trading in July 2023 to $12,850.
Historically, the lithium market has seen similar cycles, with a notable boom-bust period in 2016-2017. However, analysts at BMI, a Fitch Solutions company, suggest that a speedy recovery is not anticipated this time. In the short term, prices are expected to remain low as the market digests the surplus material. The long-term outlook is more optimistic due to government mandates promoting the transition to electric vehicles, although prices are unlikely to return to the highs of 2022 within the next decade.
Oversupply and Artisanal Mining
The current oversupply situation has been exacerbated by a significant increase in artisanal mining (ASM) in Africa, particularly in Nigeria and Zimbabwe. Research firm CRU estimates that artisanal miners accounted for nearly two-thirds of African lithium supply in 2023, volumes almost equivalent to the global market surplus last year. This artisanal production, which is heavily concentrated in former tin and tantalum mining regions, is notably price sensitive. With spodumene ore prices falling from above $6,000 per ton at the start of 2023 to closer to $1,000, the economic viability of many artisanal operations is under threat.
Waning Demand
The demand for lithium has also been hit by a downgrading of expectations for EV sales as the Chinese market matures and the Western market loses some momentum. Although the EV revolution has slowed, it remains far from reversing. BNP Paribas projects a global sales growth of 23% for EVs this year, equating to over 18.7 million vehicles. However, the product mix is shifting, with sales of hybrid gas-electric vehicles increasing significantly, while pure battery EV sales are stagnating. This trend is detrimental to lithium demand as many hybrids use nickel hydride batteries, which do not require lithium.
Hybrid Popularity and Government Policies
Consumer preference for hybrids is growing due to concerns about charging infrastructure and the higher cost of pure battery EVs. Automakers are responding to this trend. Stellantis, for example, reported a 41% year-on-year increase in hybrid sales in Europe during the first half of the year and plans to expand its range of affordable hybrid models to 36 by 2026. Governments are also adjusting their policies. The Biden administration has moderated its goal of converting two-thirds of new vehicles to battery electric by 2032, allowing for increased hybrid production.
Future Prospects
While the automotive energy transition continues, it is not meeting the lofty forecasts made a few years ago. Currently, there is an oversupply of lithium and excessive battery capacity relative to EV demand. However, this slowdown could easily reverse. The build-out of EV charging infrastructure is critical, as insufficient investment in this area has driven consumer preference for hybrids. Additionally, the high cost of EVs, except in China, remains a barrier.
Lower lithium prices could benefit consumers by reducing battery costs. According to the International Energy Agency, lithium-ion battery pack prices rose by 7% between 2021 and 2022 but are now falling as input material prices drop. Benchmark Mineral Intelligence reported that the average Asian nickel-cobalt-manganese battery cell price fell to $90 per kilowatt hour in May, the lowest since 2021, compared to the March 2022 peak of $166.
Despite the current market downturn, the foundations for the next lithium upswing are being laid. Although it may not reach the heights of the 2022 boom, the market’s inherent volatility suggests that significant price movements are still possible.
