Prices of lithium chemicals (hydroxide and carbonate) and feedstock material (spodumene) continued to fall through the second half of 2023 and into 2024 (Figure 1). Over the last few months, we have seen global lithium producers suspend operations, and implement cost cutting measures in an effort to control both capital and operating costs. While some have cautioned that this downward trend could persist through Q2/24 with a reversal expected in the latter half of the year, we would highlight that should it continue, it is likely that we see further shutdowns with multiple projects in the pipeline paused, leading to severe ramifications for the long-term prospects of the industry. In early February, we began to see prices somewhat stabilize in China (carbonate and hydroxide) and Australia (spodumene), as the rest of the world lagged behind. So the question becomes: have lithium prices bottomed out?
Figure 1: Global weighted average Li chemical and feedstock prices since 2023
Amidst the falling prices and bearish sentiment, we continue to be bullish on the long-term price of lithium, driven by demand from the energy storage and electric vehicle (EV) industries. While global passenger EV demand increased by ~33% in 2023, according to S&P Capital IQ Pro, albeit compared to 56% the year before, we highlight that it still experienced a substantial increase. Going into 2024, growth expectations still remain, but at a slightly lower pace at ~31% due to slower economic growth forecasts and challenges related to affordability and mass market adoption of EVs, especially in North America.
While the lithium market is expected to be in surplus till 2027 (Figure 2), we caution that the current supply cuts and disruptions could impact prices further, providing some level of near-term price support. We note that S&P forecasts a Li carbonate price of ~US$11,958/t for 2024, well below the reported 2023 total cash cost for major Li carbonate producers SQM and Albemarle. If prices continue to persist below the costs for some of these producers, we are likely to see more production cuts and a more severe scale back of projects currently in the development pipeline. Providing further support to near-term Li prices is the fact that through 2023 we saw both battery and cathode producers in Asia draw down from existing inventory levels to support production levels; some went as far as holding about two to three days worth of material for production. We are beginning to a see a shift in sentiment with many producers reportedly expected to begin re-stocking inventory levels in Q2/24.
In summary, we believe the tide could be turning here on Li prices. The highs we saw at the end of 2022/early 2023, were in our opinion, unsustainable to begin with, and warranted a correction. As stated earlier, we continue to remain bullish on lithium due to demand and supply fundamentals, and believe that maybe, just maybe, lithium prices have bottomed out.
Figure 2: Lithium supply, demand and price forecast
Source: S&P Global Market Intelligence
