When can we expect lithium prices to rise?
The Investing News Network spoke with analysts and market insiders to get their tips and predictions for Australian investors.
“(Benchmark expects) to see more offtake agreements snapped up, even at projects that are still under construction as project developers try to derisk their projects and buyers try to secure supply. We expect to see accelerating efforts to produce and procure Inflation Reduction Act-compliant material.”
— Adam Megginson, Benchmark Mineral Intelligence
“2023 saw the market shift into an oversupply; we now need to wait for demand to absorb that extra supply. We expect the market to remain in a surplus in 2024, although some supply restraint and ongoing good demand should ensure the surplus is manageable.”
— William Adams, Fastmarkets
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Lithium prices remained subdued in the first quarter of 2024, well below highs set in late 2022 and 2023. Various factors, including oversupply and weak electric vehicle (EV) demand, kept prices muted over the 90 day period.
“Market participants expect downstream lithium demand to remain relatively weak and with no imminent concerns about supply shortages, we forecast a tentatively balanced market in 2024,” Fastmarkets explains.
With a market bottom potentially approaching, what other factors were at play in the lithium sector during Q1? Read on for a look at key events during the quarter and what experts see coming heading further into the year.
“Indications were that inventory was quite strong both at the finished cell level and upstream with miners/brine producers,” Adam Megginson, analyst at Benchmark Mineral Intelligence, told the Investing News Network. “As such, procurement activity on the spot market was fairly subdued. Buyers in Japan and South Korea opted to draw from inventory or volumes already being procured under contract rather than procure additional on the spot market.”
Trading activity was also muted in January as market participants anticipated China’s Spring Festival.
“Expectations were that demand and in turn prices would pick up afterwards,” explained Megginson. “This restocking activity didn’t immediately materialize after the Spring Festival, which led to some gloomier sentiment in China.”
“The long-term outlook for the industry remains incredibly exciting. Both Ganfeng and Pilbara Minerals remain focused on extending our respective positions as major, low-cost producers in the burgeoning lithium market,” said Dale Henderson, Pilbara’s managing director and CEO, in the announcement.
As downstream players sought deals amid low prices, producers began revising production tallies.
“The recent material decline in spodumene prices has triggered significant reductions in short and medium-term lithium price forecasts,” it reads. “As a result, we have commenced a review of the planned expansion and associated ramp-up of Kathleen Valley to preserve capital and reduce the near-term funding requirements of the project.”
While the company is reviewing potential ways to cut overall costs, it did note that there will not be any changes to its plant design, which has a planned capacity of 3 million MT per year and is currently under construction.
Given this environment, some market watchers are calling for consolidation in the lithium sector.
The beginning of March brought some recovery in lithium prices as both carbonate and hydroxide made gains.
After starting the month at US$14,977.15 per MT, lithium carbonate prices registered a five month high of US$16,109.48 on March 14. Prices for lithium hydroxide also moved northward on the London Metal Exchange, hitting a high for the first quarter of US$13,425 per MT on March 11.
For Megginson, these moves were in line with a market that’s coming back into equilibrium.
“We forecast a fairly balanced market in 2024,” the Benchmark price and data analyst said. “While the low price environment has caused some project expansions to be pushed back slightly and some of the marginal, higher-cost supply has come offline — this has been mostly counterbalanced with larger producers producing more.”
He went on to outline the factors that likely brought on the March price rallies.
“On the demand side, cathode producers in China announced that they would substantially increase production in March, some by as much as 30 percent month-over-month — albeit compared to a very low level in February as Spring Festival was taking place,” Megginson said. The drivers on the supply side are a little more nuanced.
“Environmental inspections at lepidolite producers in Jiangxi province led to some concerns about supply from the region,” he explained. “Transgressions were found in terms of the handling of lithium slag, and some participants thought that supply could become constricted. In the end, the impact of these inspections was relatively limited with two companies being told to take action, with the remainder recommencing normal production (as of April 5).”
Megginson went on to note that there are now “rumblings” that brine producers in the same region could undergo similar environmental inspections. “Although downstream demand is ticking up notably at the moment, ample supply overall is likely to limit the extent of price rises in the short term,” he concluded.
The loan is earmarked for the construction of the processing facilities at Thacker Pass, which Lithium Americas states has the largest-known measured and indicated lithium resource in North America.
The cash injection is designed to further strengthen the North American battery metals supply chain.
“The United States has an incredible opportunity to lead the next chapter of global electrification in a way that both strengthens our battery supply chains and ensures that the economic benefits are directed toward American workers, companies and communities,” Jonathan Evans, president and CEO of Lithium Americas, stated.
Toward the end of Q1, there was more significant news for the lithium market.
Chile also announced that it has opened up over two dozen salt flats in the country for private investment.
The new lithium policy aims to promote sustainable development while ensuring fair participation among industry stakeholders. Chile intends to streamline the permitting process for lithium projects, encouraging greater investment and boosting production. Additionally, the government plans to establish a lithium consortium to oversee research and development initiatives, facilitating technological advancements in lithium extraction and processing.
For his part, Megginson advised watching lithium output from Africa.
“Although the quality of material is more variable than comparable material from, for example Australia, and the continent still makes up a small proportion of overall global supply, supply of hard-rock lithium concentrates from Africa is growing rapidly, especially from Zimbabwe and Namibia,” he said. “Currently, Chinese converters are responsible for the majority of the projects that are at more advanced stages. It is worth noting that many of these projects are not economical when lithium chemicals prices are significantly below RMB 150 per kilogram.”
Lastly, Megginson is monitoring sales activity. “We have seen an increasing number of public auctions and pre-auctions for spodumene concentrate,” he said. “This is definitely something to look out for, and I expect to see more auctions for the remainder of the year, and some similar auctions taking place for lithium chemicals as well.”
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Prices for lithium continued to sink during Q2, falling to lows unseen since 2021.
Oversupply, weaker-than-expected electric vehicle (EV) sales and a stalling energy storage sector have impeded lithium’s ability to regain momentum, with lithium carbonate equivalent prices hitting US$12,610.44 per tonne at the end of June.
“The global market is at a surplus of 180,000 tonnes of lithium carbonate equivalent,” he said. “The global lithium surplus is largely a result of a production ramp over the past few years, when prices were at their historical highs.”
Much of that increased production has come out of China, where domestic lithium carbonate equivalent output grew by a whopping 44 percent in 2023. On Mainland China, production climbed to 275,000 tonnes, while Chinese operations in Africa and South America delivered 30,000 tonnes of the material.
Although China ranks third in the world for annual lithium mine production, the nation dominates the refinement segment, which allows it to leverage control over global price dynamics, according to Lee.
“Different regional markets share similar pricing restraints, with Chinese lithium prices determining the direction of lithium prices,” he said. “Because China manages 70 percent of global lithium-refining capacity, it is the biggest consumer in the world and the country also has the most active spot lithium market.”
As new lithium projects get sidelined due to low prices, what other factors are shaping the lithium market in 2024? Read on for a look at key events during Q2 and what experts see coming heading into the second half of the year.
Lithium carbonate equivalent prices slipped to US$14,780.57 at the start of April, but had clawed back to a Q2 high of US$15,503.96 by April 9. They then began a consolidation period that would last for the rest of the quarter.
“Regional markets have begun to converge to similar levels (against) the backdrop of a bearish market globally and oversupply concerns,” said Lee at the Fastmarkets event, which was held in Las Vegas, Nevada.
With prices locked in a downward trajectory, Will Adams, head of base metals research at Fastmarkets, warned of the sector’s precarious state in his presentation at the conference. “The lithium market is in a difficult space — low prices are putting the brakes on development, when in reality there is no time to waste,” he said.
As Adams explained, this increased demand will be satiated from a “more diversified supply base.”
The open-pit lithium mine could play a key role in the North American lithium supply chain.
Another portion of the investment will establish a cathode active material processing plant and a separator plant.
According to Honda Motor, once open, the EV plant will be able to produce 240,000 vehicles annually, while the battery plant will have a capacity of 36 gigawatt hours per year.
According to the firm, funds raised by junior and intermediate mining companies soared 179 percent month-on-month in April to reach US$1.38 billion, following a slow start to 2024.
The supersized amount represented the highest monthly total in 10 months, and was driven by a 14 percent increase in financings and several high-value deals. The surge was led by the lithium and copper sectors.
However, this energy-driven momentum didn’t last long.
As Fastmarkets’ Lee explained during his presentation, the market glut and weak prices have been especially challenging for junior miners and lithium companies in the intermediate stage.
Commenting on incentive prices, he noted, “They usually sit around US$20 to US25 per kilogram per for battery-grade lithium chemicals. Currently, according to Fastmarkets’ assessments, battery-grade lithium chemicals sit below US$15. Therefore, access to capital for new project development or existing production expansion could be challenging.”
This hindrance to the project pipeline could make the market swing back into deficit as early as 2028, said Lee.
However, the most pronounced decline is anticipated to be the US market, where demand growth will fall from 81 percent in 2022 to a meager 4 percent in 2024.
These drops are the result of first-adopter saturation, as well as consumer concerns about affordability, range and charging infrastructure, said Adams. There are also mixed signals from OEMs and governments.
Those challenges didn’t inhibit EV makers from penning large-scale deals at the end of Q2.
“We are incredibly proud to announce this supply agreement with Hyundai and Kia,” said Carlos Diaz, CEO of SQM Salar, at the time. “By providing these world-leading EV manufacturers with high-quality battery-grade lithium hydroxide, we are actively contributing to a more sustainable future.”
The battery passport aims to ensure responsible sourcing and improve sustainability.
Available in the EU and US starting this year, customers can access the information via an app or QR code in the vehicle, leveraging Circulor’s blockchain technology for secure tracking.
Looking ahead, Adams noted that the lithium market is consolidating in an environment of oversupply, weak demand and high inventory. He added that there is a risk of further price weakness due to the continued oversupply.
However, lower prices could prompt more supply restraint, helping to rebalance the market.
“We expect prices to remain flat in the short to medium term,” he said.
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
The future of lithium demand relies heavily on the growth of the electric vehicle (EV) market, and in recent years its rapid expansion has led to much higher mining of the commodity — so much so that the market has entered a surplus.
This oversupply kept lithium prices subdued in the first half of 2024, but experts continue to forecast a bright long-term outlook for the essential battery material as countries around the world pursue net-zero goals.
Year-to-date gain: 57.38 percent; market cap: AU$64.62 million; share price: AU$0.14
Africa-focused explorer Prospect Resources holds a diversified portfolio of assets located in Zimbabwe, Zambia and Namibia. The company’s lithium projects, Omaruru and Step Aside, are in Namibia and Zimbabwe, respectively.
In a release, Managing Director Sam Hosack highlights the significant mineralisation potential at both projects.
Company shares rose to an H1 high of AU$2.05 on May 27.
Year-to-date gain: 53.79 percent; market cap: AU$867.55 million; current share price: AU$4.46
Europe-focused Vulcan Energy Resources aims to support a carbon-neutral future by producing lithium and renewable energy from geothermal brine. The company is currently developing the Zero Carbon lithium project in Germany’s Upper Rhine Valley. Vulcan is utilising a proprietary alumina-based adsorbent-type direct lithium extraction process to produce lithium with an end goal of supplying sustainable lithium for the European EV market.
Shares of Vulcan marked an H1 high on May 22, trading for AU$5.54.
Year-to-date gain: 11.11 percent; market cap: AU$200.03 million; share price: AU$0.15
Anson Resources holds a portfolio of projects in the US and Western Australia. Its primary asset is the Paradox lithium project in Utah, which Anson is transforming into a major lithium production operation for the North American market.
This is the company’s first permit approval for lithium production from brine in Utah.
The pilot project, funded jointly by Anson Resources and Koch through a convertible note, will be used to collect data for the potential launch of a commercial-scale plant using the technology. It is expected to enter pilot production in July.
Shares of Anson marked a year-to-date high of AU$0.16 on July 10.
Securities Disclosure: I, Georgia Williams, currently hold no direct investment interest in any company mentioned in this article.
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