Lithium Market 2023 Year-End Review

How did lithium perform in 2023?

Lithium prices were already trending downward as 2023 began, and this continued through the first quarter and early Q2. Price data supplied by Benchmark shows that the global weighted average lithium carbonate price was US$70,957 per metric ton (MT) on January 11; by May 3, it had fallen 50 percent to reach US$35,333.

The global economy was struggling, and the fight against inflation by central banks around the world resulted in higher interest rates for consumers, making big purchases such as new cars less attractive. Additionally, supply chain issues had previously led to wait lists for electric vehicle (EV) purchases, but as supply caught up with demand, inventories became overstocked. By the middle of 2023, EVs were piling up in lots.

China’s economy in particular was hit hard last year. The Asian country is both the largest EV market and the biggest player in the lithium-ion battery and EV supply chains, amplifying the effect of its struggles on the lithium market.

Lithium saw hope in the middle of 2023 as prices rebounded slightly in May, rising back up to a peak of US$45,131 by June 28 and holding over US$40,000 through July, according to Benchmark data. However, they resumed their fall in August, and had plummeted to US$17,265 as of December 13.

“The extent of the price pullback (surprised Fastmarkets),” William Adams, head of battery and base metals research at the firm, told the Investing News Network (INN) at the end of the year. “Back in June 2022, we expected the market to peak in Q4’22 or Q1’23, which we got right, but we didn’t expect prices to fall back as far as they did. Destocking and some speculative trading on GFEX in China seems to have led to prices overshooting on the downside.”

Battery manufacturers took advantage of the low price environment throughout the year, purchasing metal on the spot market as needed instead of stocking up in advance at higher prices.

While some have blamed lithium's price struggles on poor demand, Adams pushed back against this idea.

“Too many people are talking about demand weakness,” he commented via email. “Demand is not weak. Indeed, given the interest rate environment, it has held up well and as interest pullback in 2024, demand should get another fillip. Right now it’s another case of supply running ahead of demand.”

What factors impacted lithium demand in 2023?

So how did demand for lithium and EVs fare in 2023?

The US Geological Survey’s latest lithium data, released in January, estimates that global lithium consumption came in 27 percent higher year-on-year, amounting to 180,000 MT in 2023 compared to 142,000 MT in 2022.

“All regions have seen respectable demand growth rates, it's just that they were lower than those seen in 2022. But growth in the 20 to 30 percent (range) is still healthy growth,” Adams said. “The weak market condition is more about oversupply as a result of too much capacity being commissioned in too short a time frame (as was seen in 2018).”

EVs are the largest driving force for lithium demand by far — the lithium-ion batteries that power them accounted for 87 percent of lithium demand in 2023, dwarfing all other categories. According to Rho Motion, last year global sales of plug-in fully electric and hybrid vehicles totaled 13.6 million, an increase of 31 percent over 2022.

This was a drop from the 60 percent growth seen in 2022, but Rho Motion Data Manager Charles Lester told Reuters that it’s expected in growing markets. “You can’t double every year,” he said.

While the majority of EV sales came from China, sales in the country were only up by 15 percent. The biggest increase by far was seen in Canada and the US, which were up by 50 percent; sales in Europe were up by 27 percent.

There are significant differences between the markets. The Chinese market is dominated by lithium-iron-phosphate (LFP) batteries, and the North American and European markets are dominated by nickel-cobalt-manganese (NCM) batteries. LFP batteries are more affordable and avoid the use of nickel and cobalt, two metals whose extraction causes both environmental and human rights concerns, but the batteries are less powerful with shorter ranges.

“Range anxiety is especially a concern amongst prospective EV buyers in North America, so that may be a barrier to the growth of LFP in that market until further advances in range are made with the chemistry,” Megginson said.

What factors impacted lithium supply in 2023?

As Adams explained, oversupply has had a large impact on the lithium story. In November, GlobalData reported that it was expecting lithium production to come in at 170,800 MT in 2023, up 31.2 percent over the prior year. The US Geological Survey estimates that total production ultimately reached 180,000 MT for the full year.

There has been a big push to bring new lithium supply online to keep up with long-term demand. Governments in the US and Canada have both been working to build domestic supply chains with funding and incentives for companies in the space, such as the US’ Bipartisan Infrastructure Law and Inflation Reduction Act, which took effect in 2022.

As for Canada, the country increased its lithium output dramatically last year, going from 520 MT in 2022 to 3,400 MT in 2023 after Sayona Quebec, a joint venture between Sayona Mining (ASX:SYA,OTCQB:SYAXF) and Piedmont Lithium (ASX:PLL,NYSE:PLL), brought the North American Lithium mine back online.

North America is far from alone in building out its lithium supply. According to Benchmark, the biggest sources of additional production in 2023 were Australia, China and Africa.

Zimbabwe, Africa’s largest producer of lithium, introduced a ban on exports of raw lithium at the end of 2022, meaning the mineral must be processed into higher-value forms before it can be exported. The country’s lithium mining and processing grew significantly in 2023; according to the US Geological Survey, commercial production alone increased by 230 percent last year, rising from 1,030 MT in 2022 to 3,400 MT of contained lithium.

Several Zimbabwe operations entered production last year, including lithium concentrate production at Lonosphere Investment’s factory in Harare, which was targeted at 36,000 MT of lithium concentrate in 2023, and pilot production of spodumene concentrate at Premier African Minerals’ (LSE:PREM) Zulu lithium-tantalum project.

Zimbabwe has also seen strong investment from Chinese companies. Zhejiang Huayou Cobalt (SZSE:603799) brought the processing plant at its Arcadia open-pit mine into production in 2023 with an annual production capacity of 50,000 MT of lithium carbonate equivalent. Chengxin Lithium Group’s (SZSE:002240) Sabi Star lithium-tantalum mine began trial production last May, with planned annual lithium concentrate production of about 200,000 MT.

China itself raised its domestic contained lithium production from 22,600 MT to 33,000 MT during the period, according to the US Geological Survey. As for top-producing country Australia, whose production rose from 74,700 MT to 86,000 MT, multiple operations raised production during the year. Additionally, Core Lithium (ASX:CXO,OTC Pink:CXOXF) brought its Finniss lithium operation in Australia’s Northern Territory online in February 2023, and the company had produced 67,853 MT of spodumene concentrate by the end of the calendar year.

However, Core made the decision to suspend mining operations at Finniss in January 2024 due to low spodumene prices, and said it will instead focus on processing its existing stockpiles of 280,000 MT of ore, which will be enough to feed its concentrator through the middle of the year.

Why are lithium producers cutting production?

Other companies also cut lithium supply in 2023, and this trend is likely to continue to some extent in 2024.

“We have definitely seen a chilling out of investment interest now that chemicals prices this year have fallen over 80 percent from last year's peak — some of the more marginal projects predicated on elevated prevailing prices are likely to drop out of the market,” Megginson explained to INN.

“That being said, political and regulatory support for localizing supply chains in both Europe and especially North America is still robust. So while the direction is still there, the more bearish price environment will slow the pace.”

This has extended to some larger operations as well, which was a surprise for CRU Group’s Martin Jackson. “I was surprised to see downgraded plans from both SQM (NYSE:SQM) in Chile and Albemarle’s (NYSE:ALB) Greenbushes in Australia,” he told INN in December. “Both of these operations are still making significant margins on their products.”

Western Australia’s Greenbushes hard-rock mine is operated by Talison Lithium, which is a joint venture between Albemarle, IGO (ASX:IGO,OTC Pink:IPGDF) and Tianqi Lithium (SZSE:002466). In November, Albemarle shared that the partners were considering dialing back their growth plans and production at Greenbushes.

The latter came true at the end of January, when IGO announced production guidance of 1.3 million to 1.4 million MT of lithium spodumene concentrate, down 100,000 MT.