Commodity star lithium shows signs of cooling after 1,200% rally

Lithium salt extraction area at the world’s biggest salt plain Salar de Uyuni, Bolivia. Credit: AdobeStock.

A two-year buying frenzy in the world’s biggest lithium market is showing tentative signs of cooling off into the end of 2022 as huge increases in demand from China’s electric-vehicle sector begin to moderate.

Spot prices for lithium carbonate in China edged lower on Tuesday to register their first drop since June, according to data tracked by Asian Metal Inc. Speculation that demand for the battery material may soften triggered a slump in some leading lithium stocks, with top producer Albemarle Corp. tumbling.

The commodity — a vital component in most electric-vehicle batteries — has more than tripled in price over the past year, and it’s rallied more than 1,200% since 2020. The extraordinary surge has been driven by tight supplies to electric-vehicle manufacturers, one of the bright spots in China’s struggling economy, but cracks in near-term consumption may now be starting to surface.

“We were expecting weaker demand from EVs starting from the first quarter of next year, however we find that this happening quicker than expected,” said Yettie Yi, head of new energy research at Shanghai Metals Market. “Prices will be steady for the next few days as the market works out its views.”

Less support

While the EV market and its supply chain are heading for substantial long-term growth, there are some headwinds for the pace of expansion in China. Subsidies for EVs that encouraged rapid expansion over the past decade are due to be phased out next month despite speculation they may be extended.

The slump in lithium equities came after a sharp fall in lithium futures earlier on China’s Wuxi Stainless Steel Electronic Trading Center, where prices are prone to bouts of severe volatility. Analysts including Yi said rumors of productions cuts at major battery manufacturers had triggered a downturn in sentiment.

“We know that battery plants have definitely reduced purchasing of cathode materials” and that will have a knock-on effect, SMM’s Yi said. Nevertheless, that doesn’t necessarily mean they are cutting production, she added.

The spot lithium price fell 0.5% on Tuesday after touching a record last week. Related shares were mixed on Wednesday. Australia’s Pilbara Minerals Ltd. was 1.9% higher after falling 8.7% on Wednesday, while top Chinese supplier Ganfeng Lithium Group was down 2.7% after rising on Tuesday.

“The slowdown in demand, if any, will likely be relatively tame given that demand outlook still points to accelerated growth,” Allan Ray Restauro, an analyst at BloombergNEF, said by email.

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