Lithium prices are expected to soon normalise following the spike in Chinese spot prices experienced from the end of December 2020 through January, Fitch Solutions Country Risk and Industry Research says.
Chinese spot prices for battery-grade lithium carbonate and lithium hydroxide have rallied since the end of last year owing to tighter supply, and this intensified in January as Chinese lithium producers forecast limited supply in the first two months of this year.
Fitch Solutions notes that lithium prices are positioned to benefit from the accelerating uptake of electric vehicles (EVs) in the medium term, underpinning the company’s bullish outlook for a sustained recovery in prices.
Lithium is a critical raw material necessary for the transition to a green economy, with applicable uses in lithium-ion batteries which are commonly used in EV manufacturing, as well as in electric devices, or alongside solar panels to store excess solar energy.
Fitch Solutions’ automotive team expects the global EV fleet to grow by, on average, 23.6% year-on-year between 2021 to 2030, reaching 83.6-million EVs on roads globally by 2030.
As such, it expects global lithium supply to wane in the coming years, as demand consistently rises, placing upwards pressure on prices.
Therefore, significant investment in lithium developments will be necessary to prevent a supply deficit within the decade, emphasises Fitch Solutions.
Based on its team’s yearly sales forecast, Fitch Solutions expects lithium supply to start running into difficulties managing demand for the autos sector alone within the next five years, with a likely deficit by 2027 when global EV sales are forecast to reach 10.9-million.
Fitch Solutions notes that financial support and investment incentives will continue to be critical for upstream producers to advance current lithium projects.
Moreover, the firm expects lithium hydroxide to overtake lithium carbonate use in the longer term, benefitting from increased supply from hard-rock mining projects.
Fitch Solutions notes that an increased focus on sustainability in the entire value chain is a possible threat to lithium carbonate demand and thus prices down the line.