Lithium price: where next in 2023?

Lithium carbonate prices rocketed by over 1,000% in two years to a record 597,5000CNY/tonne by November 2022. Today, the speciality chemical changes hands for 207,500CNY/tonne, having recovered from its 19-month low of 165,500CNY/tonne in late April 2023.

The rise to its record high was a result of result of a perfect storm of increased demand and constricted supply — and its fall back to more reasonable pricing the perfect example of the mantra that ‘the cure for high prices is high prices.’

However, the widening supply gap and continually increasing demand for EV batteries mean that these relatively lower prices may not last long. Arguably, the wider macro argument for lithium prices has not changed.

Lithium price: US and Chinese demand

Tesla CEO Elon Musk has dubbed lithium ‘the new oil.’ 80% of lithium mined ends up in electric vehicles (EVs), and both the US and China are seeing a huge shift away from traditional ICE cars.

For context, IEA figures show that over 750,000 new all-electric cars were registered in the US in 2022, an increase of 57% on 2021 and 5.6% of the total auto market. In China, close to 6 million new electric vehicles were registered, a rise of 83% on 2021 and 22% of total sales.

This increased adoption has been driven by positive legislation. In the US, the Inflation Reduction Act offers an EV tax credit of $7,500 per new vehicle through to 2032, and the lower of up to $4,000 or 30% of the sales price for used EVs (subject to conditions). Further, the law allows for a tax credit at 30%, up to $1,000, on charging equipment for individual users, with smaller subsidies for commercial.

The Act has also allocated $3 billion to electrify the United States Postal Service fleet, and billions more for other electrifying subsidies. President Biden has spearheaded $7.5 billion toward building 500,000 more public EV chargers by 2030; and there are only 51,000 in use at present according to the US Department of Energy's Alternative Fuels Data Center.

In China, the Communist Party had previously spent years subsidising battery manufacturers and providing consumer incentives for the $87 billion industry — however, it halted these inducements in January, spurring the fall of the lithium price. Combined with the Chinese New Year, January EV sales fell sharply, though they have since recovered.

A lagging effect of this policy change has been felt through the world’s largest battery manufacturer, CATL, which took advantage of the huge subsidies in 2022 to manufacture excess batteries building up a glut of inventory. It’s now reportedly selling these batteries at a discount to customers who sign multi-year exclusivity contracts, and at some point this increased inventory is going to be run down.

With China still struggling to get the economy into third gear, it’s possible that new subsidies will be introduced — especially if the US starts gaining ground. But if not, the sector will start to stand on its own feet, with GlobalData analyst Al Bedwell considering that EV sales could hit 10 million units in 2025.

A further developing ground is the Chinese-western battle for lithium deposits in Africa. Potentially world-class deposits such as those owned by Premier African Minerals in Zimbabwe, Kodal Minerals in Mali, or AVZ Minerals in the DROC have all seen significant Chinese investment — with the Chinese prepared to pay for security of supply.

The US EPA anticipates that new rules being drawn up — that will limit the amount of carbon dioxide that can be emitted by new cars — will have the effect of ensuring that 67% of new passenger vehicles sold in the country will be electric by 2032. This is a sharp increase on Biden’s previous pledge to ensure that 50% of new car sales would by electric by 2030.

Meanwhile, the EU has plans to ensure that 100% of all new cars will be electric by 2035. By contrast, only 3.8% of cars sold in Australia were electric in 2022, but the government’s carbon abatement policy could see EV sales rise to 50% of the country’s total by 2030.

Automanufacturers supply concerns

The most recent report from Australia’s Office of the Chief Economist analyses that global lithium demand will reach 989,000 tonnes of lithium carbon equivalent in 2023, above the 964,000 tonnes of production expected this year. Further, the body expects that a lithium supply deficit will continue until 2027, at which point production will overtake demand.

Moreover, International Energy Agency forecasts show that EV penetration globally should hit 40% by 2030 — driven by changing consumer tastes and laws reducing carbon emissions. For context, lithium demand has risen by a CAGR of 25% per year over the past five years, and this may continue until EVs become the dominant vehicle type by the mid-2030s.

Of course, with demand set to rocket amid slowly increasing supply, the market has responded. BYD has bought up a 5.1% stake in Chengxin Lithium. Toyota owns 6.16% of Allkem. Ford has an offtake agreement with Liontown Resources. Volkswagen is planning to build three battery plants in Europe and at least one outside, and has set up a seperate entity named PowerCo to directly invest in lithium mines.

Both Volkswagen and Stellantis have agreements in place with lithium group Vulcan. Mercedes-Benz has a supply agreement with Rock Tech Lithium, Ford has another with Lake Resources, and BMW has inked yet another agreement with European Lithium. And Tesla has long-standing supply agreements with Ganfeng and Piedmont.

With lithium mines taking circa a decade to get running, the law of supply and demand suggests that lithium prices are likely to rise again. Automakers are therefore prioritising offtake deals and even direct investment to ensure their own supply.

ASX lithium stock mergers?

Mining mergers are in the air as companies seek to reduce costs and boost their supply of critical minerals. Newmont and Newcrest, BHP and Oz, Glencore and Teck — and the lithium sector is no exception.

With Chile set to nationalise lithium production, larger titans are looking to diversify their asset bases. Albemarle's rejected multiple $3.7 billion bid for Liontown, Tianqui-Igo’s approach for Essential Metals, and the gigantic $10.6 billion merger of Allkem and Livent all demonstrate the ongoing merger fever.

Lake Resources, which specialises in the same type of lithium extraction technology in Argentina as Livent, could be the next target. Shares are down 58% over the past year after the shock resignation of its CEO in June 2022, and a short-seller attack from J Capital which claimed that its proprietary lithium extraction process is not effective.

However, Lake recently announced that it has produced lithium at independently verified grades and purity above 99.8% at its flagship Kachi Project. And together with partner Lilac, it issued a statement claiming that ‘we’ve proven that it is possible to produce high-purity lithium faster and without evaporation ponds – all while protecting surrounding communities and ecosystems.’

And all the while, increasing demand and restricted supply could send lithium’s price higher through 2023.

Take your position on over 16,000 international shares via CFDs or share trading – all at your fingertips on our award-winning platform.*

Learn more about share CFDs or shares trading with us, or open an account to get started today.

* Winner of ‘Best Multi-Platform Provider’ at ADVFN International Finance Awards 2022