EV Battery Metal Market Faces Downturn As Prices Plummet: What's Next For The Industry?

The electric vehicle (EV) industry is experiencing a significant shift as producers of lithium and nickel, essential components in lithium-ion batteries, are pausing projects and shutting down mines in a bid to conserve cash. This move comes in the wake of a dramatic decrease in commodity prices, with lithium prices dropping by up to 90% since last year, and nickel prices seeing a reduction by about half.

Albemarle Rethinks South Carolina Project Amid Price Crash

According to the Wall Street Journal, Albemarle Corp. ALB, a key player in the production of battery metals, is reevaluating its plans for a high-tech $1.3 billion lithium processing plant in South Carolina.

This project, intended to support South Carolina’s growing electric-vehicle industry, is now on hold due to the sharp decline in battery metal prices and a slowdown in the growth of electric-vehicle sales in both the U.S. and China.

As a result, Albemarle is implementing company-wide cost-cutting measures, including layoffs and delays in other investments.

Glencore and BHP Group Face Setbacks

Glencore, a Swiss mining and trading giant, announced the suspension of operations at an unprofitable nickel mine and processing plant in New Caledonia, citing high operating costs and a weak market. The company is looking for buyers for its stake in this venture that contributes over 6% to the world’s nickel supply.

Meanwhile, BHP Group BHP, the world’s largest miner by market value, has indicated that it may need to close its Australian nickel business temporarily. Despite having supply agreements with major automakers like Tesla and Ford Motor, BHP is wary of a quick market recovery.

Industry Challenges and Investment Slowdown

The global supply of lithium and nickel has surged as producers expanded operations to meet the anticipated demand from the EV industry. However, with the growth of EV sales slowing down, several automakers, including Ford, General Motors, and Volvo, are adopting a more cautious approach, delaying investments due to uncertain consumer demand.

This cautious stance is further evidenced by the bankruptcy filing of British electric-vehicle maker Arrival’s U.K. business, attributing its challenges to adverse macroeconomic conditions.

ETFs Reflect Market Downturn

The downturn has also impacted investment products linked to the battery metal sector. The Global X Lithium & Battery Tech ETF LIT, which offers exposure to global lithium companies, has declined by 37% in the past year, with a more than 50% drop since its peak in 2021. Similarly, the Sprott Nickel Miners ETF NIKL has experienced a 45% decrease since July 2023.

Chart: Significant Decline in Lithium and Nickel-Related Stocks Since Last Summer

Looking Ahead: Potential for Recovery Amid Challenges

Despite the current downturn, some industry analysts believe that the scale of the cutbacks might be moderate, suggesting that miners are still optimistic about long-term demand. Lower metal prices could eventually benefit automotive companies by enabling them to offer cheaper models and discounts, potentially reigniting sales growth.

However, the current slowdown in mining operations poses a risk of future shortages if demand for EVs surges again, potentially leaving car manufacturers in search of supplies.

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Image created using artificial intelligence with MidJourney.