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.
Goldman Sachs on #lithium: "The recent rally in lithium prices should not be interpreted as the end of the bear market, where further supply rationing is needed to reduce both the 2024e surplus and now larger surplus in 2025e …"
Remains sell on $PLS $CXO $MIN and buy on $IGO pic.twitter.com/RVn3sNbnnB
— Kerry Sun (@K3rry_Sun) April 8, 2024
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.
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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.
Sigma Lithium CEO won't sell the company at current lithium prices https://t.co/OzHQyZ2G6c pic.twitter.com/ak2wzkPfUM
— Reuters (@Reuters) April 4, 2024
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.
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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.”
