Top producer says lithium prices to keep falling

Despite the lofty expectations for demand from electric vehicles, where lithium-ion batteries dominate, prices for the raw material are now languishing at two-year lows.

Free-on board prices of lithium carbonate from South American brine ponds are down 31% over the past year to average $10,375 a tonne in September, according to Benchmark Mineral Intelligence data. At the same time, ex-works prices in China have collapsed from a peak of $24,750 in March last year to below South America export prices.

Producers in Australia now get $325 less for spodumene concentrate (6% lithium used as feedstock for lithium hydroxide) cargoes than in July last year, when prices were above $900 a tonne, according to Benchmark’s September assessment. Lithium hydroxide prices followed carbonate down, but now trade at a premium to the latter at $13,000 FOB North America.

Thanks to a slew of new hard-rock lithium mines and expansions at existing operations in Western Australia, the country is now the number one producer. New supply coming on stream over the next couple of years is also dominated by Australia, even as producers trim expansions plans and scale back projects.

The latest quarterly report and forecast from Australia’s Department of Industry provides cold comfort for lithium bulls:

“Spot prices have fallen more sharply than contract prices, with the latter responding more slowly to growing evidence of oversupply — such as stock gains.”

The office of Australia’s chief economist expects the hydroxide surplus to gradually decline and prices to start recovering in 2021, but spodumene “is expected to face a longer period of oversupply, with prices forecast to remain soft through the whole outlook period.”

Supply driven

The current weakness is almost entirely supply driven. Changes to EV subsidies in China has made a dent in sales growth this year, but longer term, the government forecaster is decidedly bullish about vehicle electrification with projected annual sales of more than 40 million EVs by 2028.

Overall Chinese production of lithium ion batteries reached 1.34 billion units in August, up 7.8% compared to the same month in 2018. Last year output of batteries grew by just shy of 13%.