Lithium has been right here earlier than. There was an identical boom-bust cycle in 2016-2017 however the distinction this time is that no-one appears to be anticipating a speedy restoration.
The short-term outlook is for costs to trundle alongside on the lows because the market digests surplus materials.
The longer-term image is extra constructive as governments pressure the transition to electrical autos however there might be no return to the giddy heights of 2022 within the subsequent 10 years, in accordance with analysts at BMI, a Fitch Options firm.
Don’t be too fast to jot down off both lithium or the electrical car sector, although. The present worth bust has been exacerbated by one-offs on each the provision and demand sides of the equation.
An excessive amount of provide
Lithium producers view their product as a bespoke chemical tailor-made to battery-makers’ tight specs slightly than as a generic commodity.
But lithium’s worth behaviour is that of another commodity, durations of excessive pricing encouraging over-production which should then be weeded out by durations of low pricing.
That sample is at present taking part in out as producers trim output and defer growth plans in response to the brand new a lot cheaper price actuality.
One little-discussed ingredient of the present glut, nevertheless, is the surge in artisanal mining (ASM) in Africa, significantly in Nigeria and Zimbabwe.
Analysis home CRU estimates that artisanal miners accounted for nearly two-thirds of African lithium provide in 2023 with volumes almost equal to the worldwide market surplus final yr.
African shipments of ore and low-grade concentrates accounted for 1 / 4 of China’s complete lithium imports within the first quarter of this yr on a steel contained foundation, in accordance with CRU.
Chinese language entities are closely concerned in formalising artisanal provide which is centred on earlier tin and tantalum mining areas.
Nonetheless, ASM is especially worth delicate. The present wave of unbiased manufacturing started when the worth of spodumene ore was nonetheless above $6,000 per ton at first of 2023. It’s now nearer to $1,000, difficult the financial viability of all however the richest of deposits.
Extra formalisation might consequence however because the cobalt market has learnt, ASM is usually a very important and really fast-moving swing element of the general provide image.
Too little demand
Compounding lithium’s worth weak point has been a downgrade in expectations for EV gross sales because the Chinese language market matures and the Western market loses a few of its latest momentum.
The EV revolution has hit a gradual patch however is way from going into reverse. BNP Paribas, for instance, remains to be anticipating international gross sales progress of 23% this yr, equal to over 18.7 million autos.
What has modified, nevertheless, is the product combine. Gross sales of pure battery autos are flat-lining, whereas gross sales of hybrid gas-electric autos are booming, even in China.
Chinese language gross sales of plug-in hybrids jumped by 90% year-on-year in April and Might, whereas these of pure electrical autos rose by a relatively modest 10%, in accordance with BNP.
This can be excellent news for the broader power transition however it’s not so good for lithium since many hybrids use a nickel hydride battery with no lithium, the financial institution notes.
Hybrids, as soon as considered as a mere stepping stone on the journey from inner combustion to totally electrical engines are proving remarkably widespread with customers apprehensive about charging infrastructure and the comparatively excessive price of pure battery autos.
Automakers are responding. Stellantis, which noticed hybrid gross sales develop by 41% year-on-year in Europe within the first half of the yr, plans to broaden its line of inexpensive hybrid autos to 36 fashions in Europe by 2026.
So too are governments. The Joe Biden administration has rowed again on its goal of changing two-thirds of latest autos to battery electrical autos by 2032, permitting auto-makers to step up manufacturing of hybrids as a substitute.
Full cost forward
The automotive power transition remains to be in full swing however shouldn’t be matching the exuberant forecasts made a few years in the past.
There’s now an excessive amount of lithium provide and an excessive amount of battery capability relative to client demand for electrical autos.
The slowdown may simply reverse.
One important facilitator would be the build-out of EV charging infrastructure, a sector which has attracted far much less funding than battery manufacturing.
Automobile consumers in Europe and the US are selecting hybrids due to vary nervousness and they’re going to proceed to take action till they see extra charging factors.
The second key issue is worth, with electrical autos nonetheless costlier than conventional automobiles in all places exterior of China.
Simply as excessive lithium costs had been excellent news for producers however not battery-makers, present low costs are unhealthy information for the lithium sector however excellent information for customers within the type of decrease battery costs.
Lithium-ion battery packs registered a 7% improve in worth between 2021 and 2022, breaking a long-running downtrend, in accordance with the Worldwide Vitality Company. Excessive lithium costs had been matched by bull markets in different battery inputs comparable to cobalt, nickel and graphite.
Battery costs at the moment are tumbling as costs for lithium and different supplies fall.
The common Asian nickel-cobalt-manganese battery cell worth fell to $90 per kilowatt hour in Might, in accordance with analysts at Benchmark Mineral Intelligence. That was the bottom since 2021 and a good distance off the March 2022 peak of $166.
The seeds of the subsequent lithium upswing are already being sown within the present low-price atmosphere.
It’s going to doubtless not match the spectacular growth of 2022 however lithium’s historical past of worth volatility isn’t over but.
(The opinions expressed listed below are these of the writer, Andy Dwelling, a columnist for Reuters.)
(Enhancing by Jane Merriman)