The crash in lithium prices over the past year is holding back reinvestment in new supply, the world's largest producer of the key battery metal, Albemarle, says.
Slowing growth in electric vehicle sales, including in the top EV market, China, and a market oversupply in battery metals sent lithium prices crashing by 80% in the past year, prompting lithium miners to pause and scale back expansion projects.
The deferral of new supply developments amid the low prices is setting the stage for the next lithium supply crunch later this decade, executives and analysts say.
As miners accelerated lithium production in 2022, the market swung from a supply deficit in 2022 to a surplus in 2023. Add to this slower Chinese EV sales than in previous years, and the perfect storm on the lithium market was created—too much supply, faltering demand.
While major lithium suppliers continue to see a surge in long-term demand as the energy transition gathers momentum, the current low price environment is "unstainable," Kent Masters, Albemarle's chairman, president, and chief executive officer, said on the company's earnings call this week.
"For us to kind of reaccelerate, if you will, we'll need to get a better view of what pricing is and the long-term view of that as well. So, we think that the prices today are unsustainable. They're below operating cash levels of some assets that are currently operating. And they're definitely below reinvestment levels," Masters told analysts after Albemarle reported better-than-expected revenues and earnings for 2023. Related: Iraqi Kurdistan Oil Export Restart Still A Way Off
Cost cuts and re-phasing of some spending on projects helped Albemarle book the second-highest income in its history despite the slump in prices.
The lithium producer said in January that it was rephasing larger projects, reducing capital expenditures, deferring some spending, and planning job cuts to "optimize its cost structure in response to changing end-market conditions, particularly in the lithium value chain."
"The company is also pursuing actions to optimize its cost structure, reducing costs by approximately $95 million annually, primarily related to sales, general, and administrative expenses, including a reduction in headcount and lower spending on contracted services," Albemarle said last month.
The current lithium prices are not in a range allowing projects, especially in the West, to get off the ground, Albemarle's Masters said on the earnings call.
The price crash has led to a slew of profit warnings and project halts from the world's biggest miners of the battery metal.
After warnings of project reviews and moves to preserve cash from U.S. and Australian lithium mining firms, some of China's biggest miners also warned last month of a plunge in profits and potential asset write-downs.
Albemarle sees a glut of inventory in the downstream sector, which is driving spot prices lower, Eric Norris, President of lithium, at Albemarle, told analysts on the call this week.
"Inventory that we're seeing is further downstream. It's in the battery and EV level of supply chain. And that is affecting apparent demand to the lithium industry, albeit EVs are growing quite healthily, about 30% we see for the year going forward," Norris said.
Lithium demand is expected to grow in the long term, but there will be a period of glut and low oil prices, which some analysts see persisting through 2025-2026.
Despite the current gloom on the lithium market and the financial struggles it is bringing to the top miners, industry executives are confident in the long-term prospects and expect the current low oil prices and a lack of investment to create the next big lithium crunch.
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Keith Phillips, chief executive at North Carolina-based Piedmont Lithium, told Yahoo Finance Live this week that lithium mining, as a cyclical business, will have its ups and downs.
"With lithium prices down by 90% from a peak 16 months ago, just about every new development project is slowing down," which will lead to another supply crunch, Phillips said.
It's a matter of time before prices will rebound and could go to very high levels, the executive told Yahoo Finance, summing up his view with the saying, "low prices are the cure for low prices."
By Tsvetana Paraskova for Oilprice.com
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