Lithium

Chart below shows the severity of the price fall in lithium carbonate (battery grade, CNY/t) since the beginning of 2023. They look quite similar for Lithium hydroxide and spodumene prices.

ompare that with the pattern of the Chinese equities index as expressed by the IZZ ETF, see Chart 5. 

Some of the contributing factors to the fall in lithium price include:

• Supply surplus in 2023 and moving into 2024 as well.

Goldman Sachs estimates that global lithium hardrock supply to increase by 613kt LCE (Lithium Carbonate Equivalent) over 2022-2024. This pushes up oversupply in 2024 to around 200kt (Chart 6). Another industry forecaster, Benchmark Mineral Intelligence* expects the supply market returning to a deficit in 2028 with expectation of price adjusting upward at least 12 months prior. *https://source.benchmarkminerals.com/Source

2. Slower demand growth in EV.

Two factors seen contributing to this - the phasing out of Chinese subsidies in EV and the lower economic growth in China which reduced consumers’ appetite for EVs. EV output grew quicker than demand in 2023 with 1.82m units produced vs retail sales of 1.5m units YTD (according to Goldmans’ research, Chart 7). For greater insight to expected demand for EV, see China’s Economics below.

Where to from here?

The outlook for lithium price divides the market. On the lower end, we see Goldman forecasting a 12 month price target of RMB 88,875/t from current’s RMB 97,500/t (8.85% lower), see Chart 8 and the red line marked 1 on Chart 4.

If you were to cast your eye back to Chart 4, you will notice two black lines across the chart at the right bottom corner, marked with 2. Those are the price expectations of two other market participants, at around CNY150000/t (54% higher) or more than doubling to CNY210000/t from 15 Dec’s price of CNY97500/US$13,716/t respectively.