Lithium producers cut output, scaleback expansion as prices plunge

Lithium prices will likely recover modestly in 2024 and 2025 as the fall in the rates witnessed in 2023 has resulted in a production cut, the Australian Office of the Chief Economist (AOCE) has said. Analysts and industry leaders say prices may stabilise in 2024 before rising in 2025.

In its “Resources and Energy Quarterly”, it said lithium spodumene price is forecast to rise (in real terms) to about $1,360 a tonne by 2026, before falling to about $1,090 by 2029.

Global lithium producers have been reducing production, scaling back expansion plans, and focusing on cost-saving initiatives in response to low lithium prices since 2023, say analysts. The drop in prices has been driven by increased supply and a slowdown in electric vehicle (EV) sales. This includes Chinese lithium carbonate miners.

Prices down 50% YoY

According to Trading Economics website, lithium carbonate prices fell to below 110,000 Chinese yuan ($15,202) per tonne, failing to maintain the over-three-month-high of CNY 115,500 ($15,962) seen in the second half of March as oversupply in the Chinese electric vehicle market maintained muted bidding for batteries.

Currently, it is quoted at 108,500 yuan ($14,994), down 50 per cent year-on-year. 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.

Paul Graves, President and Chief Executive Officer of US-based Arcadium Lithium, said in February that “very few lithium expansion projects make economic sense at current market prices, and the longer prices stay near these levels the greater the impact will be on future supply shortfalls”.

“This could result in lithium prices rising, although the complexity of the global battery supply chain makes both the timing and extent of such an increase difficult to predict,” said Graves.

Weaker-than-expected demand

The AOCE said a wave of investment in lithium production spurred on by the high prices of 2022 resulted in a sharp rise in global lithium supply in 2023. “Lithium demand was weaker than expected over the year, due to a slower than expected EV adoption in the US and EU. This closed the market deficit which drove the record prices in 2022,” it said.

Prices have largely returned to levels similar to those prior to the rally in 2021. “In February 2024, the spodumene price fell to an average of $1,000 a tonne, while the lithium hydroxide price fell to average $13,350 a tonne,” the Australian Office of the Chief Economist said.

Goldman Sachs, which was among the first to come out with a negative outlook on the metal, maintains a pessimistic outlook for lithium prices in 2024. It has projected further declines and projects pressure on lithium prices due to oversupply. S&P Global has predicted that lithium prices may start looking up in 2025 only with the surplus getting reduced.

Growth to slow

According to Carboncredits.com website, despite short-term volatility, the long-term forecast for lithium remains positive. Lithium is crucial for decarbonisation efforts, especially in the EV sector.

The AOCE, which sees the Down Under nation to witness lower earnings from lithium hydroxide  exports, demand from EVs is expected to drive the bulk of lithium demand, with the share of demand from EVs rising over the outlook.

According to Xuan-Ce Wang, Managing Director, Chief Scientist and Professor at Mineral System and Geology, the growth rate of the European new energy vehicle industry is expected to further slow down in 2024 due to subsidy reductions and other reasons.

“The sales growth prospects in the Chinese and European markets, which are the core battlegrounds for new energy vehicles in 2024, may face significant challenges, to some extent dragging down the global sales growth of new energy vehicles in 2024,” he said, adding that the next bull market may not be before 2025.

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