Lithium Market May Have Turned A Corner, But Don't Expect 2022-Style Rally

Things are looking up for lithium prices as Chinese companies return to the market after a period of working through existing inventories, helping to end a monthslong slide. 

The move higher will likely be gradual, as opposed to the record spike the market saw in 2022 when prices surged amid a bullish outlook for electric vehicle battery demand, increased market-led contract pricing mechanisms and sanctions that crimped the supply into Europe from Russia after it invaded Ukraine.

Since then, expectations for electric vehicle adoption growth have been tempered by high prices amid inflation, range anxiety, concerns about resale value and impatience with charging times. Despite decreasing battery demand, stockpiles in the battery supply chain in China have risen, contributing further to the slide in lithium prices.

Lithium carbonate prices fell from a record high above $800,000 per metric ton in December 2022 to around $11,500 in December. They're now trading at more than $14,000.

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Data point to some Chinese restocking within the downstream lithium supply chain, Alice Fox, senior base metals strategist at Macquarie Group, told Benzinga. A strong restocking cycle could push prices higher, especially after recent mine supply cuts because of low lithium prices, she said. 

"Coming out of the first quarter, we have seen an increase in market activity with customers looking for more volume to buy, which signals the end of the destocking period and is also being reflected in the spot prices trending upwards in the recent weeks," Ricardo Ramos, CEO of major lithium producer Sociedad Química y Minera de Chile S.A. SQM, said Wednesday in a conference call accompanying quarterly results.

Short-Term Chinese Demand Points to Higher Prices

With China having worked through its supply glut, Matthew Warder, CEO of management consultancy and financial analytics firm Seawolf Research, expects lithium prices to move up over the next six to 12 months. 

"I think lithium prices have bottomed here," he told Benzinga.

China has been working through its supplies amid "outrageous" EV growth in the Asian nation, Alex Wylie, CEO of lithium development and technology company Volt Lithium Corp. VLTLF, told Benzinga.

In the first quarter, global passenger battery and plug-in hybrid electric vehicles sales jumped 28% year-on-year in China compared with just 2% growth in the United States and a decline of 3% in battery electric vehicles in Europe, according to Counterpoint Technology Market Research.

"EV demand is showing strong improvements in recent months—especially out of China," Simon Clarke, CEO of lithium mine developer American Lithium Corp. AMLI, told Benzinga.

Long-Term Global Lithium Demand Expected to Accelerate

Consumer demand for electric vehicles hasn't matured yet, Warder said. But over the long term, experts believe demand will be strong amid wider EV adoption.

On a recent trip to China, Nicholas Rowley, vice president of business development with miner Atlas Lithium Corp. ATLX saw "a huge push by Chinese EV makers to take further market share from its western competitors," he told Benzinga.

"There are always fits and starts as new technology comes on stream," Graham Harris, chairman of lithium explorer Surge Battery Metals Inc. NILIF, told Benzinga. "Think back to the internet and Wi-Fi coverage. Now 5G is taken for granted. It will be the same for the EV industry where advances in battery technology and charging will overcome the hurdles."

Domestic legacy automakers are facing increased competition from pure EV companies, with Chinese firms aggressively exporting EVs at competitive price points and with generally solid technology, Clarke said. 

"Overall global EV demand is looking stronger," Clarke said. "I think blaming falling EV demand is somewhat disingenuous and masks the fact that there is now greater competition."

Even companies that are facing EV headwinds—including Ford Motor Co. F, General Motors Co. GM, Mercedes Benz Group MBGYY and Tesla Inc. TSLA— have taken steps to secure long-term lithium supply, signing up to buy directly from mining or refining companies or making direct investments in the lithium battery supply chain.

"We do realize that automakers may be a little slower in their adoption of or migration to electric vehicles, but all evidence indicates that they will get there," Francisco Lepeley, CEO of the Chilean division of lithium developer Wealth Minerals Ltd. WMLLF, told Benzinga.

Analysts expect demand for lithium to grow at an annual rate of 15%-20% through 2030, Andrew Lackner, a managing director with Energy Innovation Capital, told Benzinga. The company is a partner in EIC Rose Rock, a venture capital fund invested in Element3, a company that extracts lithium from oil and gas wastewater.

Over the next year or two, analysts project lithium supply and demand will be in balance, keeping prices around where they are currently, he said. In 2026, they project prices to increase into the $20,000 to $25,000 range through 2027 and rise from there, he said.

"While the recent drawdown on supply from Chinese processors should have a positive impact on prices moving forward, it isn't the only factor," Oerta Trepca, associate director and lithium market expert at Nasdaq IR Intelligence, told Benzinga. "Many calculate that current prices are not adequate to fund the increased capital expenditure necessary for supply to meet anticipated future demand, which could then potentially see a positive trajectory shift for prices in the long-term."

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Image generated using artificial intelligence via Midjourney.