The Lithium Market: Challenges, Fluctuations, and Long-Term Prospects

Abstract:

The Lithium Market: Challenges, Fluctuations, and Long-Term Prospects report delves into the current state of the lithium market, focusing on recent trends, demand forecasts, and factors influencing price volatility. It examines the reasons behind the recent decline in lithium prices, attributed to a slowdown in electric vehicle sales in China, while also highlighting the long-term optimism surrounding lithium demand driven by the global transition to decarbonization and EV adoption. The report further compares lithium demand forecasts from various sources and discusses the factors driving price fluctuations. Additionally, it explores strategic investments in lithium supply and the role of electrification in the EV sector. Despite short-term challenges, the report emphasizes the robust long-term prospects for the lithium market.

1.Introduction

Investors have been puzzled by the sharp decline in lithium stock prices, especially considering the expected long-term demand. Let's explore the reasons behind this trend and examine the market outlook for 2024/25.

The current decline in lithium prices is primarily due to the slowdown in electric vehicle (EV) sales in China. Simultaneously, the overall Chinese economy has also experienced a general slowdown. As demand remains subdued at previous price levels, supply surpasses demand, leading to inevitable price declines.

China’s lithium carbonate prices have dropped significantly, from a historical high of CNY 81,360 per ton in November 2022 to CNY 20,782 per ton this month—a two-year low, representing a 67% year-on-year decrease. To cope with the price plunge, Chinese refining companies are implementing production cuts and shutdowns.

Despite short-term challenges, the long-term forecast for lithium remains optimistic. Lithium is critical for decarbonization efforts, especially in the EV sector. As global EV penetration rates increase, lithium demand will outstrip supply, particularly as EVs become mainstream.

By 2030, global lithium carbonate demand is expected to exceed 2.4 million tons—twice the 2025 forecast. BloombergNEF predicts that global lithium demand will grow nearly fivefold by the end of the century, driven by EV battery demand growth.

While short-term fluctuations persist, the commitment to achieving global net-zero emissions by 2050 will continue to drive sustained lithium demand. Notably, the long-term prospects remain robust as EV penetration rates increase and global decarbonization efforts gain momentum.

Figure 1. Lithium Price Chart (Source: Trading Economics)

2.Lithium Demand Forecast: A Comparative Analysis

Lithium is a key element for the production of batteries, especially for electric vehicles (EVs). As the global demand for EVs increases, so does the demand for lithium. However, different sources may have different projections and assumptions for the future lithium market. In this report, we will compare and contrast the lithium demand forecasts from four sources: McKinsey, IEA, CNBC, and Statista.

2.1.Comparison of Lithium Demand Forecasts

The following table summarizes the lithium demand forecasts from the four sources, based on different time horizons, units, and scenarios.

As we can see, the forecasts vary significantly depending on the source, unit, and scenario. To compare them more easily, we need to convert them to a common unit and scenario. For simplicity, we will use the unit of million metric tons of lithium carbonate equivalent (LCE), which is a common measure of lithium content in ores and compounds. We will also focus on the global demand for lithium, regardless of the sector or application.

Using the conversion factors from the USGS, we can obtain the following table:

Now, we can see that the forecasts are more comparable, but still show some differences. For 2030, the highest forecast is from CNBC, followed by Statista, McKinsey, and IEA. For 2040, the highest forecast is from Statista, followed by IEA, while McKinsey and CNBC do not provide estimates for that year.

2.2.Discussion of Lithium Demand Forecasts

The differences in the lithium demand forecasts can be explained by several factors, such as:

- Data sources and methods: The sources may use different data sources and methods to estimate the current and future lithium demand, supply, and prices. For example, McKinsey uses a bottom-up approach based on the projected demand for EVs and other battery applications, while IEA uses a top-down approach based on the projected energy demand and carbon emissions scenarios.

- Assumptions and uncertainties: The sources may have different assumptions and uncertainties about the future lithium market, such as the growth rate of EVs, the battery chemistry and performance, the availability and cost of lithium resources, the environmental and social impacts of lithium production, and the policy and regulatory frameworks.

-Time horizons and scenarios: The sources may have different time horizons and scenarios for their forecasts, reflecting different levels of confidence and ambition. For example, McKinsey provides a single forecast for 2030, while IEA provides a range of forecasts for 2030 and 2040, based on different scenarios of energy demand and carbon emissions.

The lithium demand forecasts from different sources show significant variation, depending on the unit, time horizon, scenario, data source, method, assumption, and uncertainty. However, they all indicate a substantial increase in the global demand for lithium in the coming decades, driven by the growth of EVs and other battery applications. This implies that the lithium market will face significant challenges and opportunities, requiring strategic investments, technological innovations, and policy interventions to ensure a sustainable and competitive supply of lithium.

3.Factors Driving Lithium Price Volatility

It's essential to recognize that lithium stock prices have historically been volatile due to various factors:

1. Supply Interruptions: Lithium is a limited-production specialty commodity, making supply disruptions a crucial driver of price fluctuations.

2. Demand-Supply Dynamics: Changes in consumption trends, especially in consumer electronics and EVs, rapidly impact demand and supply.

3. Geopolitical Conditions and Regulations: These can alter demand dynamics. Additionally, technological advancements introduce new extraction methods, affecting overall supply and prices.

4. Oil and Gas Giants' Interest: Companies like Exxon and Chevron have expressed interest in the lithium industry.

5. Shift in Supply Chains: The rise of Western converters is expected to challenge China's dominant market position as more Australian supply shifts toward Europe and North America.

In this context, Canada positions itself to meet North American lithium requirements. Enter Canadian junior lithium company Li-FT Power (LIFT: LIFFF).

Li-FT Power focuses on integrating and advancing Canada's hard rock lithium pegmatite projects, particularly in known lithium mining areas. The company is committed to exploring and developing the country's high-quality lithium assets.

4.The Electrification Role of Lithium in EVs

Strategic investments to ensure future lithium supply are increasing. In 2023 alone, major automakers and lithium producers committed over $1 billion.

For instance:

- General Motors invested $650 million in Lithium Americas.

- Albemarle invested $110 million in lithium developer Patriot Battery Metals.

As the global EV market continues to grow, lithium demand will outstrip supply, especially as EVs become mainstream. Lower lithium prices may attract more buyers, leading to increased demand.

5.Short-Term Challenges and Long-Term Outlook

Despite short-term fluctuations, the long-term forecast for lithium remains optimistic. Lithium is critical for decarbonization efforts, particularly in the EV sector.

By 2030, global lithium carbonate demand is expected to exceed 2.4 million tons—twice the 2025 forecast. BloombergNEF predicts that global lithium demand will grow nearly fivefold by the end of the century, driven by EV battery demand growth.

While short-term challenges persist, the commitment to achieving global net-zero emissions by 2050 will continue to drive sustained lithium demand. Notably, the long-term prospects remain robust as EV penetration rates increase and global decarbonization efforts gain momentum.

Conclusion:

In conclusion, the Lithium Market: Challenges, Fluctuations, and Long-Term Prospects report underscores the dual nature of the current lithium market landscape. While short-term challenges such as price volatility and supply disruptions persist, driven by factors like changes in EV sales and geopolitical conditions, the long-term outlook remains promising. The growing global demand for lithium, particularly in the context of decarbonization efforts and EV adoption, presents significant opportunities for market growth. Strategic investments in lithium supply infrastructure and advancements in battery technology will be crucial in addressing short-term challenges and capitalizing on long-term prospects. Overall, the report highlights the importance of navigating the evolving lithium market dynamics with a balanced perspective, recognizing both the immediate hurdles and the enduring potential for growth and innovation.

References

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(2) Why Lithium Prices are Plunging and What to Expect. https://carboncredits.com/why-lithium-prices-are-plunging-and-what-to-expect/.

(3) Have lithium prices finally bottomed? - The Motley Fool Australia. https://www.fool.com.au/2024/01/09/have-lithium-prices-finally-bottomed/.

(4) Lithium market outlook 2024 | IG Bank Switzerland. https://www.ig.com/en-ch/news-and-trade-ideas/macro-intelligence--lithium-and-navigating-the-ups-and-downs-for-231205.