Author: Tim Sharp
Researcher: Jack Williams
Published: April 27, 2023
Demand for the mineral and the products it can produce has arguably never been higher, however the raw spot price of Lithium Carbonate, the preferred form of lithium for uses such as EV Batteries and grid storage has plummeted in recent months, losing nearly two thirds of its value.
As the global energy landscape evolves and the demand for renewable energy solutions and electric vehicles increases, Lithium has emerged as a key part of the energy transition towards sustainability. Amongst its forms, Lithium with its high energy density has gained significant attention in recent years as an opportunity for investors wishing to play the green transition within their portfolios. Lithium Carbonate, the lithium form of choice for EV battery builders and energy storage systems due to its purity and being amongst the highest of energy densities within the metals, has been watched closely in recent months as prices retreat from it’s all time high of 597,500 CNY/Tonne to below 175,000 CNY.
Recently Bloomberg released a study forecasting the Global Lithium Supply and Demand through to 2030, in which they predicted Lithium Demand to more than triple by the end of the decade with government programmes phasing out the production of traditional ICE (Internal Combustion Engine) based cars and transport, along with an increased prioritisation towards the storage of the energy generated from renewable sources such as wind farms that has been seen in recent years. Other bullish drivers considered within the Bloomberg study included enhanced customer adoption and interest around lithium-based transport, increased milage/battery pack sizes, increased lithium content in chemistries and real-world energy cell densities increasing. All of which would be positive for lithium in the longer term, or one would think so.
For Lithium investors, recent months have been disheartening to say the least, while EV bulls have rejoiced at the prospect of the lower costings for the most expensive part of the car to produce going forward. For Longer range EV’s, as much as $20,000 or £16,099 of the price tag of an EV comes from the cost of the battery.
Many investors are wondering with such a strong long-term story, why has Lithium has been hit so hard in recent months?
On the demand side, this can be explained by a less bullish sentiment around EV’s in China as a decade long EV subsidy programme winds down in addition to the extended Lunar New Year celebrations which eroded the sales of new cars at the turn of the year.
Lithium Analysts such as Fastmarket’s Jordan Roberts side with the theory of markets waiting to see the impact from lower consumer subsidies and consumer confidence data, which is currently tied to the country’s property crisis. By subsidising EV’s to price parity with conventional ICE cars, the country experienced a huge swathe of growth in its EV market, most recently at a rate of 90% in 2022. Dutch ING Groep formed a similar thesis in late February when they said “the fiscal burden has risen, and the government may not want to spend on subsidies to boost consumption when the economy is recovering. After the fiscal driven spike over the past few years, EV sales will slow.”
In Mid-February, the worlds largest Lithium-Ion battery manufacturer CATL (Contemporary Amperex Technology Co., Limited) had started offering discounts on batteries sold to Chinese EV companies such as Nio and Xpeng showing the downturn in spot prices for the essential minerals involved in battery production. CATL held around 37% market share globally for EV makers.
While demand for lithium is somewhat impacted, many point to the supply side of lithium as being the main contributor to falling prices this year. Production and exploration of Lithium have increased over recent years, with miners motivated by high spot prices and limited supply levels, however this according to many institutions could be set to change as waves of fresh supply come online from facilities in China, Australia and Chile. Bank of America, JP Morgan and Morgan Stanley all forecast production increases of between 22% and 42% in 2023 alone. New supply is coming online at a roaring pace, while demand appears to remain relatively strong given its long-term prospects, supply surges and downstream overcapacity could bring lithium prices down further in the medium term.
Recent announcements in March have continued to drive down lithium prices as supply is unveiled in more jurisdictions globally, such as the first lithium deposit to be discovered in Iran’s mountain province of Hamedan, believing to hold over 9 million tonnes of lithium, equitable to around 10% of the world’s total proven deposits. Discoveries of this size cause investors to reassess the total amount of lithium out in the world, and the price they are willing to pay for it. Scarcity drives prices, while abundances drive prices down in the same way as seen most other metals and commodities.
The question in many investors are pondering is with such a structural change emerging with Lithium and it’s strong future prospects, will these pockets of uncovered supply really put a dampening on the long term spot price or has the negativity amongst investors perhaps been overdone, with more use cases coming forward, can the scales of supply and demand equalise once again for Lithium as EV’s, Battery Storage and green energy increase in popularity and availability.
Chart 2: Bloomberg NEF, Avicenne Global Lithium Supply & Demand Forecast Study (Bloomberg NEF)
Chart 3: Global X ($LIT) Lithium & Battery Tech ETF
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