Lithium Prices Have Collapsed Because of Lower EV Demand Than Projected

The lithium industry’s recent price fluctuations have exposed the challenges of a rapidly expanding market struggling to find equilibrium.

As electric vehicle (EV) demand slows, lithium producers are struggling with the aftermath of a dramatic boom-and-bust cycle that has left the industry awash in surplus inventory.

Joe Lowry, founder of Global Lithium LLC, hopes the next market upturn will be less volatile. “When the thing turns, will there be a ridiculous spike like there was last time? I hope not,” Lowry said. “You’re just going to bring in more garbage into the system and more volatility, which makes it harder for everybody.”

The lithium market’s wild ride began with soaring prices driven by EV-fueled demand and supply constraints.

Carmakers scrambled to secure supplies, sparking a frenzy of panic buying and investments in mining projects.

However, the high prices attracted a flood of new suppliers, particularly small-scale producers in China and Australia, leading to a glut that sent prices plummeting by as much as 84% from their peak.

RELATED: Electric Grid Upgrades Needed For EVs May Increase Costs For All Consumers

Now, the industry is sitting on a mountain of inventory across the supply chain, from mined ores to finished batteries and EVs.

While Chinese prices have shown signs of recovery, buyers remain cautious. Major producers like Albemarle Corp. and SQM have been hit hard by the downturn, with Albemarle reporting a fourth-quarter loss.

Despite the current oversupply, some key players remain committed to expansion plans, arguing that stable, ample lithium supplies are crucial for the industry’s long-term health.

SQM, for example, is operating at full capacity and moving forward with planned expansions. Chile, a major lithium producer, aims to double production to prevent future shortages and price spikes.

The lithium market’s future hinges on the balance between supply and demand.

While concerns about EV adoption in some Western markets have emerged, Chinese car and battery manufacturers continue to forge ahead with significant expansions. Companies like Zijin Mining Group Co. are eyeing acquisitions of large-scale mines to bolster their lithium and other metal businesses.

READ NEXT: Biden Admin Plan For Green Economy Missing One Important Component – The Electricity to Power it All

As Morgan Stanley analyst Amy Gower noted, “It’s still a market where supply is set to outpace demand growth. We are starting to see a supply reaction but we need to stay in this pain zone for a little bit longer.”