Lithium prices fall as buildup outraces boom

Lithium miners have been preparing for a rise in demand when electric vehicles move into the mainstream. However, the price of the silver-white soft metal, which is essential for rechargeable batteries, has begun to slide following a burst of new production and slowing growth in China.

The price of lithium nearly tripled between 2015 and 2018 as the number of electric vehicles rose to over 5 million and automakers began to become concerned about the supply of raw materials.

In 2017, six lithium mines opened in Australia as mining companies began racing to get their share of a rapidly evolving technology with a bright future.

However, the boom is electric vehicles is still not quite here yet.

A slowdown in growth has occurred in China, the world's biggest market, and the surge to fill the battery supply chain has waned. The result has been a 30% plunge in lithium prices which is creating concern about where the bottom may be.

“The latest EV data did reveal slowing growth, inferring that on top of excess supply, demand is now a problem,” said a report by analysts at Macquarie Capital. “The key interest for investors should be who is likely to survive.”

The slowing rate of growth in China, however, may yet be offset by a rising demand in India. 

The NITI Aayog (National Institute for Transforming India), a government think tank, has said that electric vehicle take up in the country could lead to a drop in over 35% of carbon emissions from road transport. 

India has also been keen not to miss out on lithium-ion battery manufacturing in the way it did with solar panel manufacturing, and to reduce its massive oil import bills.

Nonetheless, the future is still uncertain. 

Output in the world's largest producer, Australia, is forecast to rise about 23% over the next two years. Chile, the second-largest producer, has a target to double production over the next four years.

Demand in Europe appears certain to grow, as the EU and other countries follow the example of Norway, where 60% of all cars sold are either electric or plug-in hybrids, and Denmark, which has targeted a full conversion to EVs by 2025.

Despite a strong outlook in long-term demand, some producers have lowered short-term earnings forecasts. Umicore SA, the world's largest lithium-ion cathode maker, has lowered its 2019 earnings guidance. While the company said it anticipates “significant growth in revenues and earnings in 2020,” its previous projections have slowed down.

Albemarle and Livent, two major lithium miners, have also said that a slowdown in demand and lowering of prices has caused delays in production.

A study by the Association of Mining and Exploration Companies in Australia has forecast that by 2025, the mined lithium market would be worth $20-billion (€18-billion), compared with $43-billion (€38.5-billion) for refined products and $424-billion (€380-billion) for battery cells.

“As the EV industry evolves, battery requirements are changing to address greater safety needs, range specifications, and energy density,” Javier Martinez de Olcoz, an analyst from Morgan Stanley, wrote in a report. The difference, he said, "has raised questions about the ability of lithium producers to keep up with the fast-changing demand profile.”

Lithium suppliers that are able to adapt more quickly to the changing needs of customers would be much more likely to dominate the market, de Olcoz added.

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