While many market participants continue to forecast long-run prices for lithium-carbonate equivalent (LCE) in the mid-teens, analysts at commodity research group CRU remain unconvinced and believe that prices will remain in the single-digit figures.
In a CRU Insights report, published this week, analysts say that the “hype” has met “reality”, noting that lithium prices have crashed through the $10/kg LCE mark at the end of July, owing to plentiful supply.
“Weaker-than-expected demand in China is partly responsible, but the main driver has been the ongoing avalanche of new supply into the market, as plentiful cheap spodumene meets ample conversion capacity in China,” CRU states.
Propelled by strong demand from the lithium-ion battery industry and uncertainty over future supply, prices exploded between 2016 and 2018, prompting widespread interest and investment in lithium projects across the world.
Australia has opened six spodumene mines in only three years and is now the world’s leading producer of mined lithium units. But as the lower-price environment set in, several curtailments have recently been announced, including at mines owned by Pilbara Minerals, Albemarle and Alita Resources.
Despite these cutbacks, the mine supply forecast remains plentiful over the next few years and CRU analysts say that it will be difficult for early-stage projects to secure financing, while expansion phases proposed at existing Australian operations may also be delayed.
Despite the oversupply of feedstock, many argue that refinery bottlenecks will keep prices elevated in the long run, but CRU finds the argument largely unconvincing.
“Conversion capacity ramp-ups do appear ambitious, with Chinese carbonate production capacity expected to increase at a 2019 to 2024 CAGR [compound annual growth rate] of 9.8%. But the Chinese refinery sector has proven time and time again that if conversion arbitrages are sufficiently high enough, they can ramp up conversion capacity at a tremendous pace.”
It notes that China has proven with the dramatic expansion of cobalt sulphate production capacity in 2017, that it can respond quickly. At the time, the battery market faced a shortage of cobalt sulphate capacity – and despite an oversupply of feedstock, the cobalt sulphate premium over cobalt metal reached close to $10/lb. However, a major expansion in cobalt conversion capacity has made cobalt sulphate converge rapidly to cost-driven prices of about a $1.50/lb discount to cobalt metal, reflecting the relative manufacturing costs of the two materials. Cobalt sulphate is currently priced at a $2.75/lb discount to cobalt metal.