Due to its widespread usage in batteries, lithium has become an essential commodity in the energy transition that has been occurring over the last decade.
The mineral determines how quickly the global energy shift may occur and is critical to the growth of low-carbon power options worldwide.
As a result of its unique physical and chemical characteristics, lithium can store a significant amount of energy relative to its small size. Its energy storage capacity does not deteriorate significantly when recharged, making it suitable for long-term usage. A Department of Industry, Resources, and Sciences report estimates by 2029, lithium consumption will reach 2.3 million tons, an increase of 16 per cent annually.
However, a worldwide surplus sent lithium prices lower last year as supply outpaced demand. In a recent analysis, UBS Group AG stated, “The lithium market is rebalancing, with industry curtailing production and projects,” although it emphasized that there is still a glut.
A decrease in supply is anticipated to facilitate a moderate rebound in lithium prices throughout 2024 and 2025. The report forecasts lithium prices returning to their 2022 high levels after 2029.
Most of the demand for lithium is anticipated to come from the electric vehicle market, although significant downside risk exists.
As laid out in the report, “EV adoption faces challenges from rising trade barriers and supply chain concerns…and lithium is in competition with other materials.”
New battery technologies, including lithium-manganese-iron-phosphate batteries and sodium-ion batteries, can lower the amount of lithium needed for energy storage.
Looking forward, “from 2026, alternate battery chemistries could place some price pressure on lithium-ion EV batteries, resulting in a fall in lithium prices for the rest of the outlook period,” according to the department’s report.
Lithium spodumene prices are predicted to increase to US$1,360 per ton by 2026 and then decline to US$1,090 by 2029.
Lithium production worldwide is expected to rise to around 2.14 million metric tons by 2030, three times more than 2022’s volume.
However, it is estimated in 2030 demand will exceed supply. Significant lithium resources will need to be produced annually for supply to keep up with the projected year-over-year increases in global lithium demand over the next 10 years.
Currently, Australia, Chile and China are the world’s leading lithium producers. Australia produced 86,000 Metric Tons (MT) within the last year, while Chile followed with 44,000 MT. China’s output was 33,000 MT.
Hard-rock mining is used for Australia’s lithium reserves, where the lithium ore is refined from spodumene, then converted into lithium carbonate or lithium hydroxide.
Chile has lithium brine reserves. As opposed to Australia, lithium in Chile is extracted from the ground by pumping the brine out and then letting it evaporate in pools.
Chinese lithium is extracted from both brine pools and hard-rock mines. However, Rystad Energy analysts predict lepidolite mining, a hard-rock resource costly for generating lithium, will face challenges in China. Due to the lepidolite slowdown, analysts have lowered their prediction for China’s mined lithium output growth in 2024 from 54 per cent to roughly 12 per cent.
Global lithium mining is being hampered by a decline in its price, as the market for electric vehicles has declined within the current sluggish economic environment.
A 27 per cent growth in lithium mining globally is now expected, as opposed to the 42 per cent increase projected earlier. This will result from decreased output rates of Australian lithium mining. Chinese production, also based on an expensive extraction technology, requires a review of production targets and the development of new project plans.
Though China accounted for approximately a fourth of the world’s mined lithium output in 2023, a prolonged price downturn renders costly production unsustainable.
As one key industry spokesperson, Susan Zou, says, “Lepidolite mining and new projects in China and worldwide are taking a big hit from weak prices, while other types of lithium mines that provide some relative cost advantages, especially brines in South America, will maintain a fast-growing pace.”
Lithium will play a key role in the ongoing worldwide energy shift. Significant investments in lithium production have created excess supply, resulting in a price decline.
However, the market is readjusting and more expensive mining producers are being phased out. By 2030, demand is predicted to surpass supply, mostly due to EV industry development, underscoring the necessity for significant yearly production growth. Although there may be obstacles with emerging battery technology and materials, the predicted strong demand points to a bright future for lithium.
Dmytro Konovalov has over 10 years of experience in equity research and analysis for global markets at leading international financial institutions.
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