Are Lithium Prices Indeed on the Upward or Downward Trajectory amid the Debate of “Supply Sufficiency” and “Further Price Hike”?

SHANGHAI, Jul 26 (SMM) - The World EV & ES Battery Conference kicked off in Yibin city, Sichuan province a few day ago, and lithium attracted heated discussion. Even after the meeting, debates over the price dynamics of lithium are still intensive. Some believe that, "The supply of lithium resources is not a bottleneck. Lithium is basically ubiquitous. The amount of resources that have been proven and suitable for mining can fully support the growth of demand in the field of lithium batteries in the future. And with the continuation of the discovery process and the advent of the tide of lithium battery retirement, the lithium supply shortage will not exist”. While others argue that: "Although there is no shortage of lithium on the planet, there is a shortage of lithium ores that are qualified to produce high-purity lithium salts required by lithium batteries. In this case, the prices of lithium will steadily reach a new high in the second half of the year at 600,000 yuan/mt."

SMM believes that it is biased to present opinions without considering the time dimension and talk about the price range with the absence of supply and demand. Therefore, SMM will talk in detail about the market supply and demand from different time dimensions, and the market outlook based on this.

First of all, according to the latest data released by USGS, the global lithium reserves in 2021 reached 22 million mt in metal content (equivalent to about 120 million mt of LCE). This figure reflects more of the currently proven reserves that can been mined, which are expected to increase further with the advancement of the discovery process. On the other hand, the current annual lithium consumption stands at about 860,000 mt of LCE in 2022. In addition, as the "retirement tide" of lithium batteries approaches, it is expected that in the next five years, the proportion of lithium supply from recycled materials will increase to about 6%. And this proportion will grow further in the future, and the inner circulation of lithium will form the second guarantee for the long-term supply of lithium resources. In addition to conventional sources of lithium mining, the concept of "extracting lithium from seawater" has been reintroduced on the back of high lithium prices. In fact, such ideas have been put forward by relevant papers as early as in 2003, and many countries are currently engaged in the research of extracting lithium from seawater.

Therefore, there will be no shortage of lithium in terms of sources, and with the gradual establishment of a lithium battery recycling system, the supply shortage is off the table in the long run. At present, the bottleneck from the resource side is mostly due to the mismatch between the resource release rhythm and the downstream lithium battery demand growth rate. In the short term, there is a certain supply void with the inconsistent growth on the mining and demand side, which leads to short-term lithium price hikes.

Now, we need to look in detail the future release of lithium resources and the growth rate of demand in the lithium battery industry. In the long run, after entering 2023, with the release of many brine lake and spodumene prices, the growth rate of lithium resource supply may officially exceed the growth rate of demand, fulfilling the original supply gap, according to SMM calculations. At the same time, after entering 2023, the lithium industry may experience a three-year supply surplus due to the centralised release of resource projects, as well as supply supplement brought by lithium battery recycling. At that time, lithium prices may gradually return to rationality with the correction of the supply and demand balance.

In the short term, in 2022, the supply shortage still exists despite the supply increment of nearly 250,000 mt of LCE due to the restart of mines, the expansion of existing projects and the release of a small number of new projects, which improves the supply situation to some extent. It is expected that the global shortfall in 2022 will be around 4%, and the absolute value may be 20,000 to 30,000 mt of LCE. If we focus on the Chinese market with heavy lithium smelting and lithium battery consumption, we will see that the palpable supply deficit already showed up at the end of 2021 and early 2022. In the second quarter of 2022, the market turned into small supply surplus due to the impact of the pandemic and the advent of seasonal low in the power battery and electronics market. And the imports in large amounts also raised the lithium carbonate supply surplus to an extremely high level in June.

The supply and demand balance is likely to restore in the third quarter after domestic and overseas lithium salt supply growth materialises. The market will gradually see a supply deficit again in the fourth quarter as market players will have huge demand at the end of the year when they are to raise their sales performance, and lithium salt prices will also rise at this time.