The lithium price collapse: Is this the end ofthe boom?

By BNamericas

Although the lithium price was expected to decline, some analysts were surprised by the sudden collapse that
brought it down to around US$23,000/t on Thursday from US$80,000/t in November 2022.

The price fell more than 70%, according to spot market indices in China, which dominates electric vehicle battery production and accounts for more than half of global lithium processing and refining capacity. While the fall was attributed to the country’s slow economic recovery and reduced EV sales, Latin America plays a key role, too.

“The price drop is fundamentally explained by an increase in supply driven by greater rock and brine production in China, operational inputs from Sigma Lithium’s Grota do Cirilo rock project in Brazil and the Cauchari Olaroz brine project of Lithium Americas in Argentina. Expectations of more production, in the short and medium term, in Argentina, Brazil and Africa also have an impact,” Andrés González, senior mining industry analyst at Plusmining, told BNamericas. González said China’s slowdown was only a secondary factor compared to the increase in supply.

The president of consulting firm ESK Market Intelligence, Jorge Alee, told BNamericas that the decline was predictable and originated in the boom during the COVID-19 pandemic. At that time, governments, particularly in Europe and China, created a series of fiscal funds to control infections and boost the economy, generating enormous liquidity that was used, in large part, to encourage EV sales.

“In Europe, for example, green funds were created for more than 1tn euros [US$1.06tn] to promote industrial energy development. In 2020, Germany doubled a subsidy for electric car buyers, which also happened in France and China,” Alee said.

As a result, EV demand rose from 3.6mn units in 2019 to 6mn in 2020. Likewise, “the price per ton of lithium went from US$7,000 in 2019 to more than US$ $10,000 in 2021 until it fluctuated between US$60,000 and US$70,000. The production of electric cars was more than double the projections, caused by the explosive demand for batteries,” Alee said.

At the same time, the withdrawal of conventional vehicles was promoted and conventional vehicle factories were paralyzed due to pandemic-related logistics problems. The spot price of lithium is different from the contract price established by producers with customers. “The contract price was between US$10,000/t and US$15,000/t and the spot price was US$70,000/t,” he said.

In response, “many lithium producers changed contract models and indexed the price, so when the market price rose, the contract price automatically increased,” Alee added. Updating its contracts this way allowed Chilean producer SQM to take advantage of the price boom and increase its contribution to public coffers from an average of US$500mn/y to more than US$5bn in 2022.

Albemarle, which also operates in the Salar de Atacama, failed to update the contracts and delivered
US$600mn to the State, according to Alee. But Alee also said that the current price “is still a good price, considering that the cost to develop lithium in Chile is around US$5,000/t. You still earn a good amount.”

Alee agrees that developments in China aren’t the main factors in the price collapse. “China isestablishing itself in all markets in the world with electric cars, even in Europe. Furthermore, as the mainbattery manufacturer in the world, a lower price is convenient for it to make its production cheaper,” saidAlee. Global lithium carbonate equivalent demand reached 690,000t last year, while EV sales will increasefrom 10.6mn units in 2022 to 26-40mn in 2030, González told a recent event hosted by miningassociation Sonami.

Source: BNamericas