OEMs and battery makers on alert as lower lithium prices to push into 2024

Lithium chemicals prices have continued to fall in China, driven by robust supply being met by slower than expected domestic demand.

The price environment today is a long way from the highs of 2022 and follows a continued slide over the last 10 months, which saw prices tumble from all-time highs. Benchmark’s battery grade lithium carbonate, ≥99.5% Li2CO3 (EXW China), price reached $81,375/tonne in December 2022.

Since then prices have fallen by 71.8% to $22,950/tonne in the most recent assessment on 11 October 2023. Benchmark’s latest global weighted average lithium price is $27,177/tonne.

The only respite from falling prices in the interim was a mostly sentiment-driven price rally in May 2023, which pushed prices up to around $42,000/tonne, but this price level failed to last beyond July.

Prices for spodumene have followed a similar path, with Benchmark’s spodumene concentrate, 6% Li2O (FOB Australia), grade hitting an all-time high of $6,401/tonne in December 2022 which has since fallen by 52.3% to $3,120/tonne.

Battery slowdown

Prices were elevated over the second half of 2022 as demand rallied and especially high utilisation rates amongst cell producers led to a raw material supply crunch.

Subsequently, during 2023 battery cell makers slowed production rates and were able to delay purchases given the substantial inventories of finished cells at their facilities.

In turn, cathode manufacturers have negotiated lower prices for lithium, opting to procure material on a hand-to-mouth basis, rather than maintain an inventory.

For the most part lithium volumes under long term supply contracts were sufficient to satisfy the demand environment, enabling buyers to negotiate lower prices for spot material, amid ample supply of lithium chemicals upstream.

Expectations amongst some market participants of a restocking cycle heading into the fourth quarter of 2023, which might have supported chemicals prices, have so far failed to materialise.

The fourth quarter seasonally tends to be the strongest quarter for EV sales in China, and in 2021 and 2022 midstream procurement activities picked up in anticipation of this demand, supporting lithium prices.

However, recent macroeconomic headwinds developing in China have slowed the growth of EV sales as consumers have tightened discretionary spending in response.

Supply from both brine and hard rock routes has remained robust, and newer supply of lower purity DSO (Direct Shipping Ore) from countries in Africa has also weighed on price sentiment on a perceived rise in available material.

Lower lithium prices into 2024

Looking ahead to the end of 2023, prices are expected to remain mostly stable near current levels. This price stability could continue heading into 2024, when Benchmark forecasts the market to be more balanced with a small surplus, which could steady price volatility.

However, the lithium market balance remains fragile: only a single major project delay could throw this narrow surplus into a deficit.

Such delays, which have been observed in 2023 already, are typical in the industry and likely to increase in the future as project developers with less technical experience than incumbents are expected to begin to bring capacity online.

Given that this is the first extended period of low sentiment in more than two years, it may present downstream buyers with the opportunity they have been waiting for, to use the current depressed price environment as an opportunity to lock in better contract terms.

Although the downstream will need to work quickly to get these terms locked in as this window of weaker sentiment is expected to be relatively short lived.

Benchmark’s Lithium Forecastestimates the market will return to deficit from 2028, with prices expected to react 12 months ahead of the deficit emerging.

The deficit, under the current supply pipeline, is set to grow year after year, with the deficit in 2030 expected to reach 390,000 tonnes rising to 1,900,000 tonnes by 2040.

Unless substantial new lithium production and refining operations are committed to by majors and projects developers alike the lithium industry will fail to meet surging demand from the lithium ion battery and energy transition supply chains.

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