Lithium prices outstrip even the base metals bull run

Base metal prices have seen significant increases over recent weeks. However, one metal has outperformed them all this month, lithium. The lithium spot market for battery grade salts, specifically carbonates and hydroxides, surged nearly 15% in just the last week, according to Fastmarkets.
Fastmarkets’ price for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range, ex works China, reached 400,000-430,000 yuan ($62,833-67,545) per metric ton on February 10, up by 50,000-60,000 yuan per ton from 350,000-370,000 yuan per ton just a week earlier. While the corresponding spot price for lithium hydroxide monohydrate, LiOH.H2O 56.5% LiOH min, battery grade, ex works China, reached 340,000-360,000 yuan per metric ton on the same day. That price increased by 50,000 yuan per ton from 290,000-310,000 yuan per ton a week earlier.
A tight lithium market
The market remains tight because many Chinese producers carried out maintenance over the Chinese New Year holidays. Moreover, some have still not fully returned to production. Inventory levels remain extremely low, if not nonexistent among traders. Fastmarkets predicts the market will remain tight well into Q2 with further increases expected.
Lithium demand finally appears to have ramped up after years of the battery market over promising and under delivering. This resulted in weak prices in 2020 and the closure of some mines in Australia. However, with strong electronics and rapidly rising EV battery demand, supply now looks particularly vulnerable. New mine projects will come on stream. Ultimately supply will meet demand but for the next 12 months, SE Asian demand, in particular, will drive prices higher. China alone accounts for 35-45% of global lithium salts supply. Consequently, with the market closed over New Year, spot prices have risen strongly across SE Asia.
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Elsewhere, the lithium carbonate 99% Li2CO3 min, spot price, delivered duty paid Europe and US, assessed by Fastmarkets at $45-50 per kg on February 10. Prices climbed by 22% from the previous month. Meanwhile, lithium carbonate 99.5% Li2CO3 min, battery grade, spot price, DDP Europe and US, reached $50.00-52.50 per kg, up by 32% from the previous month.
Supply constraints, underinvestment
More broadly, the market faces constrained supply for some time to come. The supply side has suffered under-investment following low prices at the beginning of the decade. Furthermore, new projects have gone delayed. Meanwhile, demand has been stoked by regulations favoring EV’s in Europe, the USA and China. Expectations that technology would result in more dense and more powerful batteries similar to Moore’s Law for semi-conductors, have failed to materialize the FT reports. Battery physics does not lend itself to the same developmental opportunities as the miniaturization of semi-conductors.
Other technology metals face price increases too
The same demand dynamic of an emerging technology overwhelming supply of materials used in traditional applications has driven nickel and cobalt prices too. However, lithium arguably comes from a smaller, less well-developed base, resulting in greater volatility. Although Lithium deposits, in theory, appear widely distributed, economically viable deposits in locations with plenty of fresh water remain limited. Chile’s failure to meet supply expectations comes down to the fact the only water supply available comes from a virtually irreplaceable fossil water body (meaning an ancient body of water that has been contained in some undisturbed space, typically groundwater in an aquifer, for thousands of years). Though financially viable, it appears environmentally disastrous.
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Of course, some of the price increases came from speculative support. If investment in new mines could ramp up in locations like Australia, supply could improve and prices ease. On the other hand, new mines take a long time to bring product to market. For now, battery makers and EV manufacturers will likely face an elevated and volatile market price.