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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Lithium Prices Are Set To Rally

Lithium used to be a frequent headline-hogger when the EV revolution first began, with all sorts of analysts expecting the metal’s price to skyrocket as the world wanted in on emission-free vehicles. This hasn’t happened yet, and lithium has recently become just one more commodity to suffer a price slump because of the coronavirus, which appears to have hit demand for everything.  But things may be about to change.

Lithium prices are once again poised for a rally in the next few years, according to analysts, and this is because EV sales are expected to jump, driven by the so-called green recovery plans of, for now, the European Union.

At the moment, things are not good for EVs and, therefore, for lithium bulls. Sales of electric vehicles could crash by 43 percent this year, in line with the expected trends in overall car sales because of the pandemic. In January alone, sales of EVs in China took a 54-percent plunge amid the lockdown. In May, the latest month with data available, overall sales in the biggest EV market in the world registered a sharp rebound, with SUVs performing particularly well.

EVs, on the other hand, did not do that well: BYD, one of China’s largest carmakers, said its sales of electric cars had halved in May from a year earlier. This could be an instance of another effect of the pandemic. In the current economic circumstances, people become more guarded against adopting new technology, Wood Mackenzie analysts said earlier this year. 

This is why governments will play a key role in driving demand for electric vehicles and, as a result, higher lithium prices. It is governments that can pass the legislation that would increase subsidies for electric vehicles. Germany and France are already planning to raise their EV subsidies to drive more purchases. Other European countries will stick to current subsidies as EVs will make up a large part of the EU’s so-called green recovery that would seek to promote renewable energy and electrification of the transport sector in post-crisis Europe.

Related: Oil Markets On Edge As Second Wave Hits

As a result, the medium-term outlook for lithium is anything but grim. Demand for the metal will certainly contract this year, in line with demand for everything else, but it will begin recovering as soon as next year, analysts believe. By 2022, according to analysts from Citi, the price of lithium carbonate—the compound used in EV batteries—could soar by as much as 42 percent, to $7,200 per ton.

Swiss bank Credit Suisse, however, notes that it may take a while before government stimulus for EV sales begins to have an effect on said sales and, consequently, on lithium prices. Right now, there is plenty of lithium supply on the market and only when EV sales pick up substantially enough, will prices begin to change in any meaningful way.

Indeed, it may take a while for a lithium price rally to materialize because it is not just aversion to new technology that is stopping people from switching to an EV from an internal combustion engine car. It is also the plain fact that even with subsidies, EVs are expensive, and many of them are not yet profitable. This will change, and it may well change quickly. Car manufacturers, which have poured billions in electric powertrain production platforms, will start to ramp up production in response to hopefully greater demand. But if EVs remain prohibitively expensive for many at low lithium prices, there is the question of how well electric car makers will do on sales and profitability when lithium prices rise.

By Irina Slav for Oilprice.com

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