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  • Writer's pictureRealFacts Editorial Team

The Future of Lithium: Stabilization, Demand Growth, and Investment Opportunities


Lithium on the element table

Stabilization of Lithium Prices Amid Slowing Demand 


Since the beginning of 2024, lithium prices have stabilized due to reduced production amidst slow demand growth from the electric vehicle (EV) sector, according to analysts at S&P Global Commodity Insights. As of May 29, 2024, the price of lithium carbonate was $13,850 per metric ton CIF Asia, remaining within a price band between $15,500 and the current price since February 7. This stabilization follows a significant drop from a peak of $66,500 per metric ton on February 22, 2023. The decline in lithium prices is attributed to a slowdown in the EV sector, which is the largest market for lithium batteries, coupled with an increase in supply.


Lithium prices graph

Lithium producers have responded to the falling prices by reducing output. Notably, Sociedad Química y Minera de Chile SA decided in late 2023 to hold back lithium and build inventories during periods of low demand. Similarly, Core Lithium Ltd. temporarily halted operations at its Finniss site in Australia in January, and IGO Ltd. planned to stockpile 25% of the lithium produced at its Greenbushes joint venture in Australia. Additionally, several producers, including Albemarle Corp. and Mineral Resources Ltd., have resorted to auctioning portions of their output to secure higher prices. 


Demand Growth and Future Prospects for Lithium 


Despite these measures, demand growth for lithium has been slower than expected. Although demand for lithium chemicals is projected to grow by 29% in 2024, reaching 1.2 million metric tons of lithium carbonate equivalent (LCE), the market is still expected to experience an oversupply of 34,000 metric tons of LCE. Forecasts suggest that the lithium market will remain in oversupply until 2027. While EV sales in China have set several records, they have not met earlier projections, and high inventory levels at the cell level have delayed large procurement decisions. 


However, analysts anticipate a price recovery. Despite the current downcycle, the ongoing growth in demand driven by EVs supports prices above historical norms. Analysts expect lithium prices to rebound as long-term demand fundamentals remain strong. Albemarle predicts that a slowdown in expansions will lead to supply deficits later in the decade, and Mineral Resources expects prices to rise throughout 2024. In the short term, prices are expected to remain stable until July, with potential boosts from new Chinese stimulus measures, US interest rate cuts, and the outcomes of the US election in November. Alice Yu of S&P Global Commodity Insights forecasts a pickup in demand in the second half of the year due to seasonal increases in the plug-in electric vehicle and electronic sectors and possible rate cuts. 


Lithium is a critical metal for electric vehicles and energy storage, and its demand is anticipated to increase exponentially with the transition to a low-carbon economy. By 2030, 95% of lithium demand is expected to come from batteries, a significant increase from 30% in 2015. The growth in demand is driven by the rise of EVs, increased renewable energy generation, and the use of lithium in consumer electronics. Despite the growing demand, lithium supply is constrained by complex extraction processes and the concentration of large deposits in South America, Asia, and Australia. 


Investment Opportunities in Lithium 


Investors interested in lithium can consider exchange-traded funds (ETFs) that offer exposure to the entire lithium value chain, including exploration, mining, processing, and compound manufacturing. Lithium's demand is projected to grow sevenfold between 2021 and 2030, driven by the expansion of solar and wind energy, which require lithium-ion batteries for energy storage. The International Energy Agency (IEA) projects that grid-scale battery storage capacity could expand significantly under a net-zero carbon emissions scenario by 2050. Lithium-ion batteries offer advantages over older technologies like lead-acid batteries, including higher energy density, longer charge cycles, and better performance in cold weather. 


The future of lithium remains promising despite current price challenges. The metal's importance in the transition to a low-carbon economy, coupled with supportive government policies and growing consumer demand, presents significant opportunities for companies within the lithium supply chain. Investors looking to capitalize on these trends may consider a diversified, ETF-based approach to investing in lithium companies.

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