Aexist Lithium dominates among the key commodities for decarbonisation. The metal, known as “platinum,” is used to produce nearly every type of battery that powers electric vehicles (EVSecond). A pack usually includes ten kilograms of stuff.Turbocharged in the past two years EV Global sales have helped push prices up twelvefold, prompting miners to invest, automakers to sign supply deals and governments to flag it as a strategic material. Most commodity prices have stagnated this winter, but lithium continues to move higher.
The rally has since reversed. The price of lithium carbonate, one of the two main forms of refined lithium, has more than halved in China this year (see chart).One reason is slowing demand EVChina is their biggest market. Another reason is that automakers such as Ford and Volkswagen, eager to join the competition dominated by Tesla and Chinese rivals, signed battery supply deals at premium prices last year. They are now reviewing the terms, further curbing the appetite.
At the same time, the global supply of lithium mines is growing rapidly. After a 1% rise to 575,000 tonnes in 2022, it could grow by almost a fifth this year as large mines in Australia and Chile come online, according to Tom Price of investment bank Liberum.Sudden price slide hits valuations square meter and Albemarle, the world’s largest metals miner. But large miners are unlikely to suffer much. Lithium is still expensive. Consultancy Benchmark Minerals estimates that carbonate prices are four times higher than the average between 2016 and 2021, when many large projects come on stream (mine construction takes about five years).
Prices have yet to bottom out, but are unlikely to drop enough to bury the profits of large miners. Prices below $22,000 a tonne, well below current levels, will lead to the closure of many domestic Chinese mines, reducing supply. Even as refined products become cheaper, prices for spodumene, the raw material used to convert lithium ore, remain high, squeezing margins for processors. They may also be forced to cut output, supporting prices for refined products.
There are signs that demand will recover. In April, the head of the China Passenger Car Association said he expected sales to EVThe country’s s will grow by 30% this year. JPMorgan Chase & Co. estimates that the rebound will push the lithium market into deficit in 2023 and 2024. EV Sales elsewhere remained healthy. Lithium hydroxide, a refined form of lithium used in more expensive, longer-lasting batteries and more popular outside China, has held up better than carbonate. This will help the hydroxide cannot be stored forever. In the longer term, rising demand for lithium for energy storage, supported by green policies in the US, Europe and China, could make the market tighter.
That explains why big miners are still pushing ahead with new projects, such as Albemarle’s $1.3 billion lithium hydroxide plant in South Carolina. Plunging rival stock prices could make them even bigger. In March, Albemarle offered to buy Australian producer Liontown Resources for $3.7 billion. Industry insiders expect more deal activity. As far as automakers are concerned, they are eager to get more lithium. In April, GM said it would invest in a startup proposing to extract the metal from previously neglected deposits, the latest in a string of recent venture capital investments in lithium.
A price recovery would disappoint automakers. Lithium-ion battery prices have plummeted in the past decade or so, but soaring metal prices last year helped drive up battery costs by 7%. The recent drop in lithium prices should once again mean cheaper batteries, but it usually takes a few months for lower prices to translate into cheaper cars, at which point prices may rise again. After years of being torn apart, Platinum is taking a break. Enjoy the pit stops. ■
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