Battery Metals Price Volatility — Is it Here to Stay?

“We went from a state of prices being defined by marginal cost of production to suddenly a scarcity of lithium, with prices really being defined today by whoever is going to pay the last dollar for lithium,” Daniel Jimenez of iLi Markets said. “I think prices are going to continue at this very high level … at least for the next three, four years. And so we expect a lot of volatility.”

But has the market seen the worst yet for volatility? “I would first see relatively stable prices in this higher wave for two or three years. But then I don't see a likely smooth slowdown in price,” Jimenez said. “So the moment will reach sufficient supply, but with little excess of supply, prices will go down to levels close to marginal cost of production.”

When asked which actors in the supply chain are more exposed to risk, Jimenez, who previously worked at top lithium producer SQM (NYSE:SQM), said that looking back at this situation two years ago, the balance of power has completely shifted from the demand side onto the supply side.

“Over the next four years, the amount of incremental lithium additions which will come from new players is relatively limited, and most of it is already committed,” he said. “I think the best chance to secure lithium is really to try to go to the coming producers and secure something with them. I would say at this point: secure volume, price is secondary.”

The question of whether original equipment manufacturers (OEMs) will become miners in order to secure supply continues to come up in discussions, but for Jimenez, they should leave mining operations to the experts. However, an alternative would be for OEMs to become passive investors in different producers.

“Downstream players looking into potentially having equity investments in producers … I would say that is probably something one of those with bigger pockets are able to do. And I would expect much of that happening over the next year or so,” he said.