The lithium market is expected to be in oversupply in the early 2020s, despite rapid demand growth from the electric vehicle (EV) battery industry, a new report by Moody’s Investors Service states.

Lead author Joseph Princiotta says the surpluses will be greatest between 2020 and 2022, when a heavy concentration of new mine and conversion start-ups are forecast. This is despite assuming a 30% to 40% haircut to announced capacity, delays to new projects and a slower build-up of supply in the conversion part of the supply chain.

The oversupplied market will put pressure on spot prices for the metal, but Princiotta says the effects will be minimal for major lithium producers, such as Albemarle and FMC (Livent), which mainly focus on long-term contracts with minimum prices and other protective terms.

Moody's is forecasting a shift in the structure of the industry over the next decade, from a few majors producing battery grade lithium from low-cost brine in Chile and Argentina and low-cost ore from the Greenbushes rock mine, in Australia, to a more diverse industry structure with new rock-based entrants mining ore in Australia and selling spodumene to Chinese converters, as well as new rock and brine-based suppliers in Brazil, Canada and the US.

The report states that industry analysts and companies estimate EV penetration of between 8% and 25% by 2025. FMC (Livent) and Albemarle target 12% and 13%, respectively, while bottom-up analysis using the collective goal of automotive manufacturers total about 25%. However, Moody’s says that it expects EV penetration to be at about 7% to 8% by the mid-2020s, which should result in total lithium demand of about 650 000 metric tonnes.

The shortages projected for nickel and copper – both key ingredients in the battery mix – are also likely to constrain the demand trend line for lithium.

Moody's stated in an April 2018 report that it could take five to ten years for new nickel and copper mines to reach initial production ramp-up, owing to the timeline involved in making greenfield investment decisions and obtaining necessary approvals and permits.