Lithium value to remain high amid accelerated demand, tight supply – Fitch Solutions

12th August 2022 By: Donna Slater - Features Deputy Editor and Chief Photographer

Lithium value to remain high amid accelerated demand, tight supply – Fitch Solutions

EVs will continue to be a big driver of demand for lithium
Photo by: Bloomberg

Financial risk management, solutions and insights company Fitch Solutions Country Risk and Industry Research (Fitch Solutions) says lithium prices will remain “extremely” elevated this year and next, as accelerating demand for lithium-ion batteries and a tight upstream supply keep market supply constrained.

As such, the firm suggests that Chinese lithium carbonate 99.5% will average about $68 000/t this year and $55 000/t in 2023, compared with $18 938/t in 2021, thereby surpassing past historical levels.

The firm also expects Chinese lithium hydroxide monohydrate 56.5% to average about $67 000/t this year and $56 000/t in 2023, compared with $16 506/t in 2021.

Lithium demand has grown by an estimated 83.2% year-on-year between 2021 and this year, rapidly rising from an estimated 462 400 t in 2021 to a forecast of 846 800 t for this year.

For the year to date, Fitch Solutions says lithium prices have rallied as post-Covid-19 demand for lithium chemicals recovered in the automotive industry amid rising oil and refined products prices and higher inflation affecting consumer preferences.

The rally began in mid-2021, when prices towards the fourth quarter started to steadily climb past $14 000/t to $30 000/t by year-end – driven by strong automotive demand in Europe, China and the US. These price pressures were exacerbated by the relatively illiquid market for lithium spot trading, the firm notes.

Prices continued to climb, reaching $50 000/t by early February this year and peaking at about $78 000/t in early April, from which point prices have since settled.

In terms of new supply, Fitch Solutions’ database of global lithium projects reveals only four mines, with an expected capacity of about 75 000 t, to come online this year.

In 2023, Fitch Solutions expects at least 11 projects to start production, while demand continues to rise.

Regionally, explicit political and policy support in countries such as Australia, Canada and the US is expected to accelerate project timelines, while persistent political risks in Latin American countries create risks for project timelines despite Fitch Solutions’ expectations that output will continue to post strong growth in Argentina and Chile.

As a result, the firm forecasts the lithium market's supply deficit to widen from 259 000 t this year to 329 000 t in 2023.

Fitch Solutions expects production growth to accelerate in Australia, which it expects to remain the largest lithium-producing country out to 2031, accounting for 35% of global production by that point in time.

Output in the country is set to almost triple from this year to 2031, while Chile and China will nearly double their output. Production in Brazil will grow almost three-fold, albeit from a low base, while Argentina is expected to post the greatest relative growth with a sixfold increase in output to 2031.

However, Fitch Solutions expects pricing pressures to ease slightly as more consumers close offtake agreements with mines that include price caps, global growth slows, and speculative pressures about fears of future undersupply diminish slightly.

In this regard, the firm forecasts that lithium prices will crash in 2025 as a large volume of production comes online, only to recover upwards again as the supply deficit expands once more.

Fitch Solutions says lithium will be a leading beneficiary of the accelerating uptake of electric vehicles (EVs) to 2031 owing to its prominent featuring in battery chemistry.

The firm’s automotive team forecasts global EV sales will reach 11.4-million units globally by the end of this year, representing a 147.4% year-on-year increase.

In addition, another trend, the likely strong popularity of battery swap stations, means that the actual number of EV batteries manufactured will exceed the number of EVs sold, Fitch Solutions says.

Outside of the automotive sector, the firm says utility-scale batteries, energy storage batteries, portable electronics and electric mobility devices will also contribute to demand.

However, as its forecast period progresses, Fitch Solutions says lithium demand for EV batteries will account for a larger share of global demand, and that despite growth in utility-scale battery storage to 2031, EVs will account for 80% of global lithium demand by 2029, rising steadily from about a 50% to 60% share of demand this year.

In the longer term, lithium prices are likely to eventually be impacted by green premiums, owing to heightened priority of sustainable lithium extraction techniques.

In addition, the firm expects zero-carbon lithium products to sell at a premium compared with hard-rock mine output, though this may take many years given the lack of similar premiums for other critical minerals or metals.

The longer-term fate of lithium carbonate prices will depend on technological adaptations to mining techniques at lithium brine reservoirs, such as those popular in Latin America and under exploratory development in the US and Canada.