Rise in battery costs to keep lithium price rallying — report

Greenbushes spodumene mine in Western Australia. Image: Talison Lithium.

Lithium prices have rallied in 2021 and are now at record-high levels, amidst the sharp acceleration in demand during a global supply struggle.

In its latest industry report, market analyst Fitch Solutions revised up significantly both its lithium carbonate and hydroxide price forecasts from 2021 to 2026, to incorporate higher global EV sales assumptions from its Autos team and subsequent stronger lithium demand for batteries.

Fitch was expecting prices to remain on an uptrend over 2021-2022. The analyst launched the new lithium price forecast in May 2021, but lithium prices have rallied beyond expectations.

In the very near term, prices look set to continue heading higher, as the lithium market remains very tight and there is little downside for prices.

Demand will keep on outstripping supply for now, Fitch says, for both raw material (spodumene) and chemicals (carbonate and hydroxide).

Prices could stabilize later on in 2022 following the impressive rally recorded in 2021, but Fitch sees them averaging higher on a y-o-y basis, with carbonate prices at $21,000/tonne and hydroxide at $20,812/tonne, up 16.3% and 21.0% y-o-y respectively.

Fitch forecasts the global lithium market to tighten further next year, as the analyst sees the global surplus shrinking. On the demand side, the analyst notes momentum behind the decarbonization story remains very robust, which will keep the EV sector buoyant in the coming quarters.

The Autos team has revised up its EV sales assumptions in recent months and forecasts EV sales growth to decelerate in 2022 following the sharp recovery in demand recorded in 2021, but still see sales expanding by a very robust 40% y-o-y next year, at a stronger rate than pre-covid-19. Absolute growth in new EV sales will also be in line with 2021 numbers (+2.2mn cars each year).

On the supply side, Fitch forecasts global production of lithium carbonate equivalent (LCE) to rise by 18.0% in 2022, continuing on the recovery in output initiated in 2021. Global production declined in 2019 and 2020 amidst low prices.

Fitch sees carbonate prices averaging $18,050/tonne in 2021 ($13,450/tonne previously), and averaging $21,000/tonne in 2022, up 16.3% y-o-y ($15,025/tonne previously) and $19,000/tonne in 2023, down 9.5% y-o-y ($15,400/tonne previously).

Demand growth will continue to outstrip supply expansion, which will tighten further the global balance, Fitch forecasts.

Outside of the autos sector, utility-scale batteries, energy storage batteries, portable electronics and e-mobility devices (e-bikes) will also contribute to demand. However, as Fitch’s forecast period progresses, lithium demand for EV batteries will account for a larger share of global demand.

In turn, demand forecasts will become less conservative nearing 2030, when Fitch forecasts that lithium demand for EV batteries will assume a large majority of total global demand.

(Read the full report here)