Research agency Fitch Solutions has published a new lithium price forecast for this year.

The agency expects both lithium carbonate and hydroxide prices to trend higher this year and next, owing to accelerating demand for lithium-ion (Li-ion) batteries and a tight upstream supply.

Fitch Solutions says Chinese lithium carbonate will likely average $13 450/t this year and $15 025/t in 2022. Chinese lithium hydroxide monohydrate will average $11 950/t this year and closer to $14 300/t next year.

In the longer term, Fitch says lithium prices will likely be impacted on by green premiums, owing to a heightened priority of sustainable lithium extraction techniques.

This while a faster-than-anticipated advancement of battery recycling technology presents a risk to lithium prices by significantly expanding sustainable lithium supply.

In 2021 so far, Fitch Solutions says lithium prices have experienced a significant rally, as post-Covid-19 demand for lithium chemicals recovered alongside the automotive industry.

Increasing demand for lithium chemicals for use in electric vehicle (EV) batteries and energy storage systems will support elevated prices in the short term, but Fitch does not expect to see any large jumps that will push prices up to the highs observed in 2016 and 2017.

“Lithium will be a key beneficiary of the accelerating uptake of EVs over our forecast period to 2030, owing to its prominent featuring in battery chemistry.

“Its use in Li-ion batteries of varying cathode chemistries will help insulate demand from technological advances and coinciding changing preferences for cathode chemistries,” the agency reports.

Therefore, lithium will not face the same risks as cobalt and nickel as automakers increasingly use lithium-iron-phosphate cathodes and opt to minimise cobalt use.

Fitch Solutions’ automotive team forecasts global EV sales will reach over 4.6-million units this year, representing year-on-year growth of 50.1%, following growth of 36.8% in 2020, underpinning short-term demand.

Through 2023, a tighter lithium supply will persist, which helps to maintain elevated prices before developments come on line.

There will, in due course, be more lithium supply coming out of the European markets, Canada and the US, as new producers, and Chile and Australia, as existing producers.

In China, which dominates downstream lithium processing operations, battery cathode producers generally can only purchase lithium hydroxide from accredited suppliers.

A lack of accredited lithium producers results in a limited supply from which battery cathode producers can restock lithium hydroxide. This is made worse by the lengthy accreditation process, which limits qualifying supply.

On a side note, limited lithium hydroxide supply will also help push lithium hydroxide prices back above lithium carbonate in the medium term.

At the same time, spodumene supply constraints will limit the overall lithium supply. Spodumene is produced from hard rock lithium mines, which can be processed into both lithium carbonate and lithium hydroxide chemicals.

Fitch Solutions says the longer-term fate of lithium carbonate prices will depend on technological adaptations to mining techniques at lithium brine reservoirs.

The agency maintains its view that lithium hydroxide will overtake lithium carbonate demand in the long term, owing to increasing preferences from customers and easier extraction techniques.

Meanwhile, the lithium extraction sector is currently immature and not concentrated, explains Fitch. Out of 124 operations, about 101 individual companies own these projects.

Of those 101 companies, only 18 have more than two lithium operations, while 83 companies only own one lithium operation.

It is safe to say that the lithium supply sector comprises a large number of junior and exploration companies. Therefore, Fitch Solutions expects mergers and acquisition activity to pick up strongly in the sector in coming years.

Fitch Solutions identified in its Global Mine Database that only 25 mines are supplying all of the world’s lithium output. This while there are 99 brand new lithium projects being developed.

In recent years, project development for lithium projects has been hindered by a number of factors including regulation limiting the exploration of lithium deposits (for example, in Chile) and the 2018 collapse in prices.

However, with the ongoing acceleration in the electric vehicle and battery story, the pick-up in prices initiated in 2020 and heightened government support for strategic materials, interest in the upstream lithium supply is rising strongly this year.

“Stronger fundamentals for the lithium sector will lead to improved financing and suggest that lithium project development will be easier in the coming years,” the agency concludes.