Lithium and cobalt prices to remain under pressure as supply overtakes demand – report

The Hand of the Desert (La Mano del Desierto) by Chilean sculptor Mario Irarrázabal – Image from archives

Both cobalt and lithium prices have experienced a collapse, driven by a loosening of fundamentals as a number of new projects come online, Fitch Solutions’ latest Industry Trend analysis reports.

Fitch believes prices are likely to remain under pressure over the coming quarters as new projects continue to come online, keeping both markets loose.

Cobalt prices rose over 300% in the period from 2016-2018, while South America lithium carbonate prices rallied over 170% during a similar time frame

Cobalt and lithium have received significant investor interest since 2015 due to their increasing use in lithium ion batteries that power the burgeoning electric vehicle (EV) industry. As a result, demand and prices for both metals have been on the rise in recent years.

Cobalt prices rose over 300% in the period from 2016-2018, while South America lithium carbonate prices rallied over 170% during a similar time frame. However, rising prices have also spurred a flurry of investments into new cobalt and lithium projects that have significantly loosened both markets – causing prices to unwind since 2018, Fitch reports.

The impact on cobalt has been particularly striking, with prices losing 72% of their value to trade at 2014 levels near 25,500/tonne, from peaks of 95,250/tonne in 2018, the report reads. This dramatic drop has been driven by a ramp-up in new cobalt projects, leading to more output than rising demand from Electric Vehicle (EV) manufacturers can cater for.

While not as accute as cobalt, the lithium price collapse also responds to a rising number of new projects coming online due to an expectation of higher EV-fuelled demand in the future, leading to an oversupply in the present.

Fitch analysts maintain South American countries will be the key drivers of a loosening lithium market balance as they attract significant investment into new projects over the coming years due to their vast reserves of the metal. Projects include expansion plans at Albemarle’s and SQM’s operations in Chile

Over a longer 10-year time frame Fitch remains positive on both lithium and cobalt and expect prices to recover, as EV demand for both metals catches up to supply.

Read the full report here.

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