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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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New Supply Could Help Bring Lithium Prices Back Down To Earth

  • Lithium prices have skyrocketed by 1,200 percent over the past year.
  • A surge in EV demand has strained the supply of the key battery metal. 
  • EV maker BYD says prices could fall next year as new mines come online. 

Lithium prices have turned into one of the red flags in the energy transition as they have climbed inexorably for more than a year, with many expecting the supply of the battery metal to experience a further squeeze in the future.

Yet at least one EV maker says it has enough lithium for now in what is a rare piece of good news for the industry. Chinese BYD, one of the leaders in EV manufacturing, said it even expected a lithium surplus next year as new mines come online.

In an interview with Bloomberg, BYD executive vice president Stella Li said that current lithium prices were “unreasonable” and added that new supply should take care of this.

Lithium prices have gained a stunning 1,200 percent over the past year thanks to the expected surge in demand from the EV manufacturing industry since the electrification of transport is one of the main goals of the transition, as well as a means of achieving net zero.

The price surge has come at a time when EV makers are struggling with higher prices for their other raw materials as well, on top of the continued pandemic-related supply chain problems that continue to plague global industries 

Eventually, the raw material cost inflation led to the first increase in lithium batteries since 2010, BloombergNEF reported earlier this week. The transition research division of Bloomberg said batteries had become 7 percent more expensive since last year, reaching $151 per kWh.

What’s more, BloombergNEF expects prices to remain at these elevated levels for another year, delaying the EV revolution on which the transition depends. Yet after that, it seems prices will fall, and they will fall substantially.

Goldman Sachs commodity analysts share the expectations of BYD’s Li and expect the supply of lithium to catch up with demand sometime next year, pushing prices sharply lower.

According to them, as quoted by the Motley Fool, lithium carbonate prices could fall from over $59,000 per ton this year to just $11,000 per ton in 2024, while lithium hydroxide could drop from $67,240 per ton this year to $12,500 per ton in 2024.

The bank said it expected demand for the battery metal to rise to 1.3 million tons of lithium carbonate equivalent by 2025, but supply will expand to 1.7 million tons of lithium carbonate equivalent during the same period.

One of the new mines to come online soon is Grota do Cirilo in Brazil—a project of Canadian Sigma Lithium, which it plans to have in production by April 2023. By the following year, the mine should be producing 100,000 tons of lithium carbonate equivalent annually.

“With the advent of electromobility and all this excitement about lithium, the world needs new sources,” Daniel Jimenez from consultancy iLiMarkets told the FT this week. “Whoever is producing lithium in the coming three years is going to make abnormally high margins.”

Indeed, these are good times for lithium miners but could be better for lithium buyers. And there may be some more bad news for the latter. In October, Argentine media reported that the country and its fellow lithium producers Bolivia and Chile were discussing the creation of a sort of OPEC but for lithium.

Home to most of the Lithium Triangle and, therefore, close to 60 percent of the world’s lithium resources, the three talked about a pricing and production deal that would give them control over the commodity. Yet any such grouping would need to include China to have real power since China is the leader in lithium refining.

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Yet until this grouping becomes a fact, if ever, the future of lithium prices appears to be set for a correction that has cost EV makers yet another delay in their plans to take over the world.

By Irina Slav for Oilprice.com

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