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Lithium Price Crash Could Trigger Shortages From 2025

  • After hitting a high in November 2022, lithium carbonate prices in China have cratered more than 70%.
  • Although several factors are to blame for the selloff, what has really spooked the markets is looming supply coming online from China, Australia and Chile.
  • The drop in lithium prices might be one of the reasons that Albemarle did not go ahead with the acquisition of Australian lithium developer Liontown Resources.
Lithium

Over the past few years, the lithium markets exploded as the electrification drive went into overdrive. EV makers like Tesla Inc. (NASDAQ:TSLA) have been scrambling to secure supplies amid rapid EV growth and tight lithium supplies, sending lithium carbonate prices up more than six-fold and spodumene up nearly tenfold in the space of a few years. But as the old adage in the commodity markets goes, the cure for high prices is high prices, or in more common parlance, what goes up must come down: lithium prices have crashed spectacularly in the current year, reversing years of gains.

After hitting an all-time high of CNY 595,000 per tonne ($81,360 per tonne) in November 2022, lithium carbonate prices in China have cratered to the worst level in two years at CNY 174,500 per tonne ($23,860 per tonne) in the current month, good for more than 70% correction as a confluence of negative catalysts conspired to end lithium’s biggest rally ever.

Although several factors are to blame for the selloff, what has really spooked the markets is looming supply coming online from China, Australia and Chile, “Supply is coming on stream faster than you can say ‘boo’.Demand remains strong but prices have been unsustainable for some time now,” analyst Dylan Kelly of Ord Minnett has told Mining.com.

The situation is even more dire for lithium hydroxide markets thanks in large part to the sluggish performance of the nickel cobalt manganese (NCM) battery sector in comparison with the lithium iron phosphate (LFP) battery sector.

The NCM battery market is lifeless and there is barely any demand for lithium hydroxide. Therefore, the price for lithium hydroxide is not the matter, because with no demand, no one will buy the material however low the price is,” a Chinese lithium producer has told Fast Markets.

And, the lithium price crash could be a big reason American lithium giant Albemarle Corp (NYSE:ALB) has thrown in the towel in its bid to acquire Australian lithium developer, Liontown Resources Ltd (OTCPK:LINRF) for more than $4B.

"Our engagement with the Liontown team has been meaningful and productive. We appreciate the level of cooperation we have received, and we thank the entire team for their efforts. That said, moving forward with the acquisition, at this time, is not in Albemarle's best interests," Kent Masters, CEO of Albemarle, said in the statement. Related: Drone Attacks Syrian Gas Field as Israel Conflict Escalates

Albemarle noted "growing complexities" with the proposed transaction as a factor in its decision. Although the recent move by Australia’s richest woman, Gina Rinehart, to increase her bid to just shy of the 15% needed to potentially block Albemarle’s ~$4.2-billion takeover might have played a part, it’s worth noting that lithium prices were much higher when Albermalke made the first offer for Liontown.

Liontown is currently developing one of the largest and highest-grade hard rock lithium deposits in the world.

Both ALB and Liontown shares have crashed nearly 10% in Thursday’s intraday session.

Source: Trading Economics

But as the corollary for the adage above goes, low prices are the best cure for low prices: some experts are now predicting that the world could face a lithium shortage in just two years. BMI, a Fitch Solutions research unit, has predicted a lithium shortage could hit as early as 2025 largely due to China’s lithium demand exceeding supply.

We expect an average of 20.4% year-on-year annual growth for China’s lithium demand for EVs alone over 2023-2032,” the report stated. In contrast, BMI sees China’s lithium supply growing at a much slower 6% annual clip over the same period, pointing out that that rate is not enough to  meet even one third of forecast demand. 

The inability of China to meet its own demand for lithium despite being the world’s third largest producer spells disaster for other countries that rely on Chinese lithium.

Rapid EV adoption is the biggest reason why China has developed an insatiable appetite for the white metal with BloombergNEF predicting that new passenger electric vehicle sales in China will account for 60% of global sales at 14.1 million units in 2023. Last year, electric vehicle sales in China accounted for around a quarter of total passenger car sales in the country, nearly double the U.S.’ rate at one in seven and Europe’s one in eight. But it’s not just China recording supercharged EV growth: according to forecasts by S&P Global Commodity Insights, global EV sales will clock in at 13.8 million units in 2023, and surge to over 30 million by 2030.

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BMI is not the only lithium bull here. “We do fundamentally believe in a shortage for the lithium industry. We forecast supply growth of course, but demand is set to grow at a much faster pace,” Corinne Blanchard, Deutsche Bank’s director of lithium and clean tech equity research, has told CNBC. Blanchard sees a “modest deficit” of around 40,000 to 60,000 tonnes of lithium carbonate equivalent by the end of 2025, but has forecast a much wider deficit to the tune of 768,000 tonnes by the end of 2030.

But not everybody is sold on this EV boom/lithium shortage thesis. Bank Of America analyst Steve Byrne anticipates a lithium glut  will continue into 2025 with "a period of earnings and margin pressure across the value chain." BofAhas downgraded ALB to Underperform from Neutral with a $161 price target, slashed from $212, citing continued lithium oversupply.

By Alex Kimani for Oilprice.com

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