Booming Electric-Vehicle Demand Supercharges Lithium Prices

Booming Electric-Vehicle Demand Supercharges Lithium Prices

A lack of investment in new supply is expected to lead to shortages of the battery metal

Lithium prices are surging, sparking concerns about limited supplies of the battery metal that is crucial to the electric-vehicle boom.

Chinese prices for lithium, considered a bellwether because of the market’s higher liquidity and active spot market, have soared since the start of the year. Lithium carbonate, a compound of the silvery metal used in the batteries that power most of China’s electric-car fleet, has jumped 68% since the start of the year to $11,250 a metric ton, according to Benchmark Mineral Intelligence.

The price rally marks a sharp turnaround for lithium. A wave of investment in new mines until 2018—driven by overexuberant expectations of demand for electric cars—created a glut of the metal that depressed prices.

But analysts and industry executives say the pandemic has proved to be a reset point for the market. The gradual end to lockdowns has unleashed a wave of pent-up demand for electric cars that has whittled down surplus stocks of the metal, while governments have emerged from recessions with pledges to invest in clean-energy projects.

“The whole dynamic is completely changed,” said David Archer, chief executive of Savannah Resources, which is seeking to develop Western Europe’s first major lithium mine. While battery-powered vehicles were once regarded as a niche product, they are now seen as the future of transport, providing solid future demand for lithium, he said.

Chinese electric-vehicle sales more than tripled in January from a year earlier, according to the China Association of Automobile Manufacturers. In Europe, sales of alternatively powered cars—which include those that use batteries, hybrids and biofuels—eclipsed those of diesel-engined vehicles for the first time in the third quarter of 2020 and now account for a third of new passenger cars, according to the European Automobile Manufacturers’ Association.

Government incentives have also been a boon for lithium demand, said Scott Yarham, who leads battery-metals pricing at S&P Global Platts. Some European governments offer subsidies to electric-car buyers, while President Biden has pledged to build half a million charging stations, addressing a primary concern buyers face: getting stuck without power miles from a plug-in point.

“The things EVs need to tick before consumers start switching to them is chargeability, durability—the long-road-trip anxiety—and cost,” Mr. Yarham said.

The supply-and-demand balance for lithium fell into deficit in 2020 for the first time in years, according to commodity analysts at CRU. For 2021, the firm is forecasting lithium demand of about 450,000 metric tons, exceeding supply by roughly 10,000 metric tons.

“You will find there is a ‘sold out’ sign on every operating mine at the moment,” Mr. Archer said. “There will be some bad moments in the coming years where there will be a shortage of lithium production.”

Miners invested heavily in new projects as global lithium prices boomed until 2018. Supply comes mostly from miners in Australia digging up a mineral called spodumene, which contains lithium, and companies extracting it from salt lakes in Chile and Argentina.

But a run of declining prices ever since has dissuaded new investments, leading to expectations of even tighter supplies in the future. A fresh price surge could unleash a new wave of extraction.

“There has been very little investment in the supply chain,” said Caspar Rawles, head of price assessments at Benchmark. “While we have been saying for some time that demand is coming, everyone has been looking at yesterday’s price.”

His firm expects global lithium carbonate and hydroxide prices to hit highs of about $16,100 and $18,800 a metric ton, respectively, in 2024.

Rising prices are likely to draw in new investors hoping to bet on the global push toward environmentally friendly technologies, said James Jeary, an analyst at CRU. But miners would have to be cautious if they wanted to keep prices high, he added.

“Everyone is preparing for the moment when the next wave of new investment comes in,” he said. “It’s almost like the calm before the storm.”

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