Part Three: Electric Dreams Deferred
Overview of Lithium Market Dynamics (November 2022 - Present)
By Elric Langton and Alex Langton | 21 January 2024
Lithium's Labyrinth: Navigating Market Dynamics and Emerging Opportunities
Part Three is one of the longest sections in the series that we have been working on for a while. This is because it is complex and we want to cover as much ground as possible while still doing it justice.
Lithium is a crucial element in the ever-evolving landscape of renewable energy and electric vehicles (EVs), powering the future of transportation and energy storage. However, the journey of lithium prices over the past two to three years has been nothing short of a rollercoaster, marked by a dramatic surge and an equally notable decline lemming-like off a cliff. This editorial delves into this tumultuous phase, exploring the factors that led to the record highs in November 2022 and the subsequent market correction. After all, we need to learn from the past as painful as it may be.
I (Elric) still have a basket of lithium stocks, but their current value is more like bath salts than white gold. I don't blame any particular company for my losses. However, there are many issues we need to address, and our political leaders should be aware of them if they have any sense at all.
As we stand at the precipice of an โenergy revolution,โ lithium, the lightweight metal at the heart of this transformation, presents a market as dynamic as it is challenging. Despite its pivotal role in powering EVs, the lithium market has seen a surprising plot twist: a price decline amidst soaring demand seems counter to the narrative, right? We will embark on a journey to unravel the intricacies of this decline, spotlighting companies along the way, such as Atlantic Lithium, Lake Resources, Ioneer, Core Lithium, Lithium Americas, Benchmark Metals, Livent Corporation, Li Cycle Holdings, Lilac Solutions, but not limited too, poised at the forefront of this evolving landscape. Yes, some of the named are further down the commercial road than others, but they will all claim to be critical for the future of the progressive green revolution. It is anything but green, but that is another chapter and verse.
Our aim is to provide a comprehensive view of the EV transition with a healthy dose of scepticism and hope. However, it's worth noting that this is not a simple endeavour, and the transition to EVs by 2030 or 2035 (depending on the country) will have significant implications for the automotive industry. It is important to understand that the option of driving fossil-fueled vehicles will no longer be available after this point, regardless of personal preference. I severely doubt this will be the case, but again, that is another champer and verse.
The lithium market, a playground of supply and demand, is increasingly a stage for political theatre. Lithium has been thrust into the limelight with climate change narratives and the renewable energy shift. But is this another ploy in the grand geopolitical game, where environmental concerns are perhaps exaggerated for political gain?
Political Factors: Ever keen to appear, governments have made lithium a cornerstone of their policies. Initiatives and subsidies are pouring into the lithium industry, driven more by political posturing than practical considerations. Take the United States, where the Biden administration uses lithium as a prop in its infrastructure and clean energy plans. The European Union's Green Deal and China's Made in 2025 initiative are no different, strategically leveraging lithium for geopolitical clout.
International Relations: The global hunt for lithium has created an intriguing mix of alliances and tensions. Countries like Chile, Argentina, and Bolivia have become pawns in a larger game of resource nationalism and international investment. And let's not overlook the simmering rivalry between the US and China, each vying for lithium supremacy in a game of resource chess.
Environmental Considerations: The environmental impact of lithium mining is a hot topic but perhaps overblown in the grand scheme of things. While traditional methods like evaporation ponds raise eyebrows, newer technologies like Direct Lithium Extraction promise a more sustainable approach. The lifecycle of lithium batteries, from cradle to grave, is becoming a focus, but let's not be too hasty in demonising a process that's still in its infancy.
Climate Change and Demand for Lithium: Climate change has become the rallying cry for lithium demand. Nations are falling over themselves to reduce carbon emissions, often without fully considering the practical implications. The Paris Agreement, while well-intentioned, has become a convenient excuse for policy shifts that may not be as altruistic as they seem. This push for a low-carbon economy is inextricably linked to lithium, but one must question whether it's truly about environmental stewardship or more about political manoeuvring.
Conclusion: The lithium market's trajectory is a complex mix of ambition, international relations, and environmental rhetoric. Governments are jostling to position themselves as climate champions, but at what cost? The demand for lithium, while driven by noble intentions, must be weighed against the realities of geopolitics and environmental pragmatism.
This narrative of lithium is more than just economics; it's a tale of humanity's struggle to balance technological progress with geopolitical strategy and environmental realism. It's a story that begs for a deeper understanding beyond surface-level environmental alarmism and political opportunism.
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A Retrospective Glance: The Lithium Price Trajectory
Once a niche player in the mineral market, lithium gained prominence with the EV revolution, which seems to be stalling. The initial surge in demand drove prices skyward, painting a lucrative picture for lithium producers. It reminded me of the dot com boom and the bust! However, the past two years have painted a divergent story. Any sane objective analysis should draw the same conclusion as I, that there is a combination of factors, including market saturation and advancements in battery technology, has led to a softening of prices.
Prospecting the Future: A Glimpse Ahead
The lithium market is currently in flux and poised for a resurgence. The relentless push towards EVs and renewable energy solutions forecasts a bright future for lithium demand. Companies well-positioned with strategic resources, innovative technologies, and robust market strategies will likely emerge as front-runners in this new era.
Conclusion: Charting the Course Ahead
The lithium market's current state, marked by price declines and market realignments, is a complex yet fascinating narrative. For investors and industry stakeholders, understanding these dynamics is critical to navigating future opportunities.
Stay tuned for our next edition, where we will delve deeper into companies like Atlantic Lithium, Core Lithium, Lithium Americas and many more. We will explore their potential to benefit from the seismic shift from ICE to EVs, armed with detailed SWOT analyses for each.
Overview of Lithium Market Dynamics (November 2022 - Present)
In January, lithium carbonate prices steadied below CNY 97,500 per tonne, maintaining the 80% drop from 2023 and hitting a low not seen in over three years. This trend reflects a balance between abundant supply and subdued demand. China's waning enthusiasm for electric vehicles has dampened demand from battery manufacturers, leading them to forego the usual restocking and instead utilise high inventories. This inventory surge stemmed from Beijing's hefty subsidies in 2021 and 2022. Similarly, a plateau in EV battery sales kept lithium bids low in the US due to ample stocks. Consequently, market experts now predict a lithium shortage might only re-emerge in 2028, a stark shift from earlier predictions of continuous deficits that had previously pushed prices to CNY 600,000 in November 2022. UBS anticipates a 40% increase in global carbonate equivalent supply in 2024, potentially exacerbating the current surplus.
Rise to Peak Prices (Until November 2022):
Surge in Demand: The demand for lithium, driven primarily by the EV sector, surged significantly. This demand was fueled by the global transition towards a greener economy, and the increasing adoption of EVs, supported by government subsidies and PR spin consumer preferences, pushed lithium demand upwards.
EV Battery Demand and Metal Price Shifts: Rising prices for nickel and cobalt prompted several Asian electric vehicle manufacturers to shift their focus towards lithium-iron-phosphate chemistry. This, in turn, led to a surge in demand for lithium, which caused lithium prices to reach record highs in November 2022. The price of lithium carbonate, a crucial component in lithium-ion batteries, reached unprecedented levels, reflecting the high level of demand in the market.
Market Dynamics: The spike was not primarily due to geopolitical events but an undersupplied market responding to high demand.
Decline in Prices (Post-November 2022):
Market Correction: Following the peak, lithium prices began to decline. By March 2023, the price of lithium carbonate in China had dropped significantly, reflecting a sharp market correction.
Factors Influencing Decline:
Slowing EV Sales: EV sales, particularly in China, did not meet the high expectations, leading to a slowdown in lithium demand. Policy Changes and Market Adjustments, such as the removal of EV subsidies in China and adjustments in other markets, contributed to the softening of demand and price corrections.
Government Subsidies: Sanity being brought to bear of government subsidies offered to the early adopters of EVs; these have, by in lager, been removed; thus, the true reflection of the cost of an EV is ยฃ1000s more expensive than the ICE equivalent.
Increased Supply: There was a ramp-up in lithium supplies, contributing to the price decline. This partly responded to the previous high prices, encouraging more production. New supply sources and expansions in lithium production are expected to impact market dynamics, potentially leading to surpluses.
Global Economic Slowdown: A global economic slowdown also impacted demand across various sectors, including EVs.
Discounts on Internal Combustion Engine (ICE) Vehicles: In markets like China, discounts on ICE vehicles also impacted the demand for EVs and, consequently, for lithium.
Broader Global Market Implications:
Transition to Clean Energy: The lithium market trends reflect a broader global shift towards clean energy and electric mobility, influencing various industries beyond just automotive.
Regional Market Differences: Different regions, like Asia Pacific and North America, show varying degrees of impact and opportunities based on their market size, government initiatives, and lithium resource availability.
Future Trends and Forecasts:
Supply and Demand Dynamics: While a temporary surplus is expected, the long-term outlook suggests a continued demand for lithium, driven by ongoing EV adoption and clean energy transitions.
Technological and Environmental Factors: Advancements in extraction and processing technologies and environmental considerations will significantly shape the future lithium market.
Long-term Outlook:
Despite the recent price decline, the long-term drivers of lithium demand remain intact. The global push towards decarbonisation and the continuing growth of the EV market suggest a sustained demand for lithium in the future. Additionally, the increasing focus on renewable energy sources is expected to support lithium demand.โ
The total supply of lithium on a global scale exceeded 634,000 metric tons in the year 2022. Forecasts extend upward, indicating a potential surge of 2.14 million metric tons by 2030. This projection illustrates an expansion that is more than triple in volume when compared to the figures of 2022. However, it is critical to note that even with this considerable increase in supply, a shortfall is anticipated when juxtaposed against the projected lithium demand for 2030, which oscillates between 2.3 to 2.45 million metric tonsโvarying with different estimates. The yearly demand for lithium is poised for significant increments throughout the ensuing decade. To maintain equilibrium between the ascending demand and supply, substantial lithium reserves will need to be harnessed and made operational on an annual basis.
The above depends on the green agenda narrative remaining strong. However, there is increasing resistance to claims like "the science is settled" and "climate deniers need to be censored," which are nonsensical. Reasonable people open to dialogue should always be heard, and the exchange of ideas should be allowed to flourish; this principle has allowed mankind to overcome difficulties, including adapting to the climate.
Next in the Series
Part Two: Electric Dreams Deferred
Part One: Electric Dreams Deferred
Riding the Lithium Rollercoaster
Opinions
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