A few years ago, lithium producers started boosting production to anticipate the growing demand for the key battery metal for electric vehicles (EVs). For a few years, producers and investors enjoyed high lithium prices and miners expanded operations and opened new mines.
Then, production started to outpace demand as capacity and inventories grew, while demand growth for EVs has slowed as China cut subsidies for electric cars and its economic growth also slowed down amid an unpredictable trade war with the United States.
For several quarters, lithium prices have been falling and they are now more than half of what they were at their peak price back in 2017.
Analysts expect lithium prices to continue to fall in the near term, with recovery likely only in a few years’ time.
Yet, the price rout in lithium prices doesn’t necessarily mean that battery pack prices for EVs will become significantly cheaper.
“Overhead costs for producing an EV battery are still large and economies of scale have not yet been established meaning that the price of the raw materials used in a battery has a limited impact on the overall price of the battery,” Marcel Goldenberg, manager for metals and derivatives at S&P Global Platts, told Andy Critchlow, head of news in EMEA for S&P Global Platts, in a blog post.
According to Goldenberg, the EV growth rate will start catching up with lithium supply growth early next decade.
Until then, lithium prices are seen further falling and challenging the fortunes of the world’s biggest lithium mining companies.
Over the past 15 months, spot lithium prices have halved, and analysts and industry reports point toward a much lower floor for lithium.
Morgan Stanley sees lithium carbonate prices from South America dropping by 30 percent from now to US$7,500 per ton by 2025.
According to the investment bank, global economic slowdown and lower Chinese EV subsidies could delay investments in infrastructure necessary for EVs to pick up growth rate and expand market share.
“The oversupply of mined lithium products, caused largely by the commissioning of lithium mineral operations in Australia outpacing mineral/chemical conversion capacity in China has been a major influence on falling lithium prices since Q1-2018,” metals and minerals research company Roskill said in July.
Australian lithium miners expect difficult times at least through the end of 2019 due to the slowing Chinese car market and the cut in EV subsidies. Related: UK Offshore Oil & Gas Is About To Boom Again
According to Roskill, the lithium glut “may orchestrate an extended period of production curtailment as producers return to being ‘demand responsive’, versus the current ‘demand anticipation’ state of play.”
Lithium producers reported bleak financial results for Q2, which they blamed on low lithium prices.
U.S. Albemarle has decided “to delay indefinitely certain lithium expansion projects,” which will allow it to cut capital expenditures significantly while still meeting commitments to customers, Albemarle’s CEO Luke Kissam said last month.
Chile’s SQM said that “Over the past few months, changes in timing and amount of the subsidies given by the Chinese government to the electric vehicle industry had an impact on the behavior of the demand for electric vehicles in the most important market and consequently on the demand for lithium products.”
EV sales in China in July dropped after Beijing cut subsidies and as its economic growth slows amid the U.S.-China trade war. China’s cut in EV subsidies led to global EV sales dropping for the first time on record in July, analysts at Bernstein have estimated.
To be sure, EV sales globally and in China for full-year 2019 are expected to rise compared to last year, but the slowdown in July shows the significance of incentives for the EV penetration on markets.
The slower demand growth on the EV market is not good news for the oversupplied lithium market.
“Lithium hydroxide prices are projected to fall by around 15 per cent in 2019, as oversupply persists and inventories grow,” the Australian government said in its Resources and Energy quarterly report in June.
“The fact that supply is being triangulated against future demand makes it somewhat unlikely that oversupply will correct in the very near future. However, demand growth is likely to outstrip supply by around 2023,” the report says.
By Tsvetana Paraskova for Oilprice.com
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