Lithium Producers Brace For Prolonged Oversupply, Stalled Prices

The global lithium market is set to remain oversupplied, keeping the prices depressed, but this challenging situation for commodity producers could help battery makers ease the transition to electric vehicles(EVs).

Lithium prices have plummeted after soaring to $80,000 per ton in 2022, now trading below $10,000 per ton. The surplus stems from weaker-than-expected EV sales, aggressive production expansions, and strategic commitments by Chinese operators to maintain dominance in the global battery supply chain.

"There are some assets in production that shouldn't really be, but for their own reasons, they're ploughing on," said Martin Jackson, head of battery raw materials at CRU. Reuters reported his estimate that about 10% of global lithium production is currently unprofitable.

According to the Reuters report, UBS forecasts a 25% increase in global lithium supply this year, with the surplus expected to persist until 2027. Meanwhile, S&P Global projects prices to stabilize between $9,900 and $11,600 per ton until 2026.

Driven by Beijing's ambition to dominate the market, Chinese companies remain a key factor in lithium production. Production persists in Australia, Africa, and South America even at high operational costs, as China has to ensure a steady supply to support its rising EV industry.

In the U.S., lithium producers are also adapting to market pressures. ExxonMobil XOM has partnered with LG Chem to secure lithium for a cathode production facility in Tennessee, aiming to become the largest of its kind in the country. Yet, despite the tailwind from the Inflation Reduction Act (IRA), Donald Trump's second mandate could bring potential rollbacks. On top of permitting delays, his policy shift could slow domestic progress.

Major producers like SQM SQM have suffered significantly, with the company reporting a 73% decline in quarterly profits despite record sales volumes. Yet, the industry remains optimistic about long-term prospects. If the EV adoption accelerates, analysts see prices recovering above $14,500 per ton.

Still, some lithium operators are set to prosper even at current prices. Volt Lithium, a Canadian firm focusing on direct lithium extraction (DLE), has agreed with Wellspring Hydro to deploy a field unit in North Dakota.

With a worst-case-scenario extraction price of $2,900 per ton of lithium, Volt will test its technology at the second-largest domestic brine production. The firm already has DLE operations in the Permian basin in Texas and the Keg River formation in its native Alberta.

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