Automotive MMI: are Lithium Supplies Threatened by Supply Shortages?

Similar to the past six months, the Automotive MMI for March was again pulled in multiple directions. Hot dipped galvanized prices rose again, following the same trend as HRC and CRC. However, Chinese lead prices dropped significantly, pulling the index down. This was mainly due to car sales shrinking within China (the world’s top market). In addition, the U.S. automaker market saw shrinking demand at the end of 2022. This is apparent given the dropping lead prices within the automotive index. Palladium continued to trend down partially due to market surplus. Meanwhile, LME copper fell following its brief price rally. And even though lithium isn’t part of the MetalMiner automotive MMI, the lithium price index itself dropped. This had some impact on the automotive index due to lithium being vital to manufacturing EV’s.

In the end, these factors served to drag the index down as opposed to sideways or up. However, the index’s overall trend continued to move within the same long-term sideways range exhibited since November of 2022.

Month-over-month, the Automotive MMI (Monthly MetalMiner Index) dropped by 3.79%.

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Tensions Rising Between Automakers and Dealerships

According to recent news articles, the relationship between U.S. car dealerships and automakers continues to become more strained. Numerous state dealer associations are pushing for legislation that will ultimately amend franchise laws. These regulations govern the relationship between dealerships and the automakers whose brands they sell, with the goal being to preserve the independence of dealerships.

However, evolving sales models and vehicle service work continue to heighten tensions, leading to disagreements between the two parties. Automakers and the dealerships who represent their brand are different wavelengths over numerous issues. In Florida, for example, a dealer’s association could demand that the Department of Highway Safety and Motor Vehicles assess an automaker’s business practices to determine if they’re breaking any laws.

Another example is Virginia wanting specific language written into these laws that would ban any direct negotiation between the automaker to the end-user. And because automobile laws vary (potentially by a lot) from state to state, these issues are not exactly black and white.

Some worry that the growing conflict could potentially cause big problems with the recovering automotive market in the U.S. Over the past few months, inventories have thankfully returned, but consumer demand has dropped due to high interest rates and the rising cost of living. In response, numerous automobile makers and dealerships dropped prices to push out inventory. Unfortunately, there is no easy solution to the problem. However, if left unchecked, both dealerships and manufacturers could suffer the consequences.

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Lithium Price Dropping and Demand Rising: A Deadly Combination

As discussed in previous MMIs, the demand for lithium-ion battery packs isn’t going anywhere, largely thanks to EVs. In fact, The International Energy Agency continues to warn of possible lithium shortages by 2025 due to increasing demand for EVs. Meanwhile, Credit Suisse recently predicted that demand for lithium could triple between 2020 and 2025, putting supply under immense pressure. Complicating matters is the fact that the lithium price index could break into (at least a short-term) downtrend. In the month of February, prices dropped more than they have since July of 2022:

To many, the falling lithium price might appear to be a boon for automakers looking for cheap options. However, it also raises the possibility that manufacturers will start to stockpile their own lithium supplies, further constraining supply levels. Moreover, current estimates predict that EV demand will increase at an annual growth rate of 25.4% by 2028. If true, it could drive automakers to buy even more lithium to boost their supplies of EVs.

Automotive MMI: Notable Price Trends

• U.S. hot dipped galvanized steel saw a sharp increase in price month-over-month, not unlike other steel forms. Altogether, prices jumped 12.11%, bringing costs to $1166 per short ton.
• Chinese lead primary dropped by a staggering 38.54%, leaving prices at $2181.57 per metric ton.
• Korean aluminum 5052 coil traded flat, remaining at $3.68 per kilogram.
• And lastly, U.S. palladium bars fell by 17.24%, leaving prices at $1330 per ounce.

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