Lithium Trends 2021: Prices Soar on Surging EV Demand

Lithium trends Q1 2021: Price increases at rapid pace

At the end of 2020, the trend of declining lithium prices seemed to be coming to an end, with analysts predicting a better price environment ahead.

When the new year kicked off, Benchmark Mineral Intelligence was already expecting the lithium market to tighten. “But the speed of price increases in Q1 2021 was beyond expectation, with lithium carbonate having nearly doubled in price since the beginning of the year,” George Miller said back in March.

“Furthermore, shortages and sold out order books in Q1 were a stark change from Q4 2020, where lithium chemicals were freely available to consumers at lower prices," he told the Investing News Network (INN).

Commenting on how prices performed during the period, William Adams of Fastmarkets said he was expecting a bullish outcome on the back of strong demand and restocking.

“But the extent of the buying and suddenness of the emergence of tightness was a surprise,” he explained to INN. “It soon became apparent that a lot of the surplus that had built up in 2020 has been bought up and stockpiled by a few large users, and that the idle capacity was not ready to restart in a timely manner for various reasons.”

CRU Group also saw spot prices continue to move higher than expected through Q1. “EV sales across the key regions in Q1 have actually exceeded our already bullish expectations,” James Jeary told INN. “On the supply side, there’s been plenty of development of projects in preparation for future supply growth, which is unsurprising.”

EV sales surged in 2020, and remained remarkably strong in China and Europe in the first quarter. As a result, Fastmarkets was expecting demand for lithium-ion batteries to continue to pick up pace throughout the year.

Looking over to supply, expansion decisions were likely to happen in preparation for increasing brownfield mine supply, CRU’s Jeary said back in March. “Restarts will also be considered, but there is more flexibility for these over implementing expansion plans,” he added.

Miller said it was important to keep in mind that many of the expansions happening were those that were canceled or delayed over the past few years.

“So it is really bringing these back on track,” he said. “Even so, we will need to see further announcements if the looming deficit is to be pushed out further.”

Lithium trends Q2 2021: Demand strength continues

Following a positive start to the year, lithium prices continued trending up in the second quarter.

“Lithium chemical and feedstock prices continued to perform well in Q2, following tightening supply/demand fundamentals, which pushed the market into a rising price environment during Q1 2021,” Miller noted.

The Benchmark Global Weighted Carbonate Price rose by 15.6 percent across Q2, and its equivalent Benchmark Global Weighted Hydroxide Price rose by 34.5 percent; spodumene prices rose by 11.1 percent (FOB Australia).

Speaking with INN about the lithium market in the second quarter, Jeary of CRU said spot prices were largely steady in China. “Q2 is typically slightly weaker for EV sales, which weighs on demand, although May sales were stronger than previously expected,” he added.

Demand was set to continue to rise for lithium products in the next quarter, following the trend seen so far in 2021. “EV sales across all jurisdictions have been improving, and cell manufacturers and cathode manufacturers alike have been scaling production efforts and expansion plans in order to cope with forecasted demand growth,” Miller explained to INN back in June.

Demand trends were strong for both carbonate and hydroxide, he added, given the popularity of lithium-iron-phosphate (LFP) cathode material in China for shorter-range, durable, lower-cost EVs.

“(This) coexists with demand for higher-nickel cathode types in all end markets, which can provide longer-range travel and higher energy density for consumers with range anxiety,” he said.

In terms of supply, Benchmark Mineral Intelligence’s outlook was revised slightly upward in Q2, reflecting the increasing ramp-up rate for both brine and hard-rock sources.

“Despite this, the increase is unlikely to meet rising demand, placing both chemicals in a very tight position by the end of this year,” Miller said in July.

Similarly, CRU’s supply forecast was increased slightly due to a strong first quarter (and assumed strong second quarter) for spodumene miners in Australia. “Production guidance has increased for some mines, which will see output remain strong in H2,” Jeary said to INN.

The second quarter also saw Australia’s Orocobre and Galaxy agree to join forces in a merger of equals to create Allkem (TSX:AKE,ASX:AKE,OTC Pink:OROCF), the fifth largest lithium producer globally.

The lithium market had already seen quite a lot of merger and acquisition (M&A) activity in previous months, with IGO (ASX:IGO,OTC Pink:IIDDY) taking a stake in Talison Lithium's Greenbushes mine, and Pilbara Minerals (ASX:PLS,OTC Pink:PILBF) acquiring Altura Mining.

“Given the outlook for the sector, I expect more, but mainly for higher-quality assets,” Reg Spencer of Canaccord told INN in April. “I won’t rule out the potential for non-lithium companies to enter the industry via acquisition.”

Diversified miner Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) also made news headlines — and stayed in the spotlight until the end of the year — when it gave the go ahead for its US$2.4 billion Jadar lithium project in Serbia in July.

Lithium trends Q3 2021: Supply tightness takes hold

The price momentum lithium experienced throughout the first half of the year continued in the third quarter.

In fact, Benchmark Mineral Intelligence’s Miller had predicted a higher price environment in Q3, given strong demand-side dynamics and few supply-side expansions to compensate.

Commenting on the main trends he saw in the third quarter, the analyst said there was exceptional demand for lithium chemicals against tightening availability of supply.

“The speed of rising prices has been surprising, with spot trading within China for lithium chemicals and feedstock now surpassing the peak of the last price cycle in 2018,” he said.

Back in Q2, CRU had also forecast that contract prices would continue to move higher, reflecting spot price gains from earlier in the year. “Prices rose sharply in Q3 in response to spot supply tightness,” Jeary told INN. “The extent of the gains was surprising, and how fast they moved.”

Speaking about the key challenges for lithium miners, Jeary said producing additional volumes for the spot market has been difficult, given how most production is locked into long-term offtake agreements.

“We do expect additional spot volumes to become available over the next six months,” he added. With that said, CRU is expecting the market to be in deficit this year.

For its part, Miller pointed to shipping disruptions as a huge issue in the supply chain, with shipment costs and delays having risen significantly since the start of 2021.

“Whilst this may ease going into Q4 2021, ultimately the knock-on effects appear set to maintain into next year,” he added. His firm was anticipating a small deficit by the end of this year in terms of fundamentals.

“But it is likely that inventory carried over into this year will mean there is no physical shortage,” Miller said.

Looking over to M&A activity, Q3 saw top Chinese battery maker Contemporary Amperex Technology (SZSE:300750) jump into a bidding war for Millennial Lithium (TSXV:ML,OTCQX:MLNLF) in September. Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460), China's top producer of the commodity, had previously offered to buy the junior company for US$280 million back in July.

Ganfeng went on a buying spree in 2021, agreeing to buy the shares it does not already own in Mexico-focused Bacanora Lithium (LSE:BCN,OTC Pink:BCLMF) for US$264.5 million. It also bought a stake in a lithium mine in Mali for US$130 million, as well as a salt lake in China for 1.47 billion yuan.

Lithium trends Q4 2021: Prices to finish strong

The price rally did not take a breath in the year's last quarter, with prices soaring over 200 percent year-to-date.

“The high demand for LFP (cathodes) in China has really increased demand, especially for lithium carbonate in the Chinese market, ” Benchmark Mineral Intelligence's Daisy Jennings-Gray said in a recent webinar. “And we've got a tightness in hydroxide from a lack of both feedstock from carbonate and feedstock from spodumene.”

That said, the analyst added that there's been very strong demand for both carbonate and hydroxide across the globe, not only in China.

“We're expecting that lithium producers will begin to remove any, or as many as they can, fixed price contracts from their business operations, and will introduce more regular price breaks into the contracts that customers sign,” Jennings-Gray said. “And what this means is that global average pricing will really take a step up in 2022.”

According to data from S&P Global Market Intelligence, lithium chemical supply is forecast to reach 636,000 metric tonnes (MT) of lithium carbonate equivalent in 2022, up from 408,000 MT in 2020 and an estimated 497,000 MT in 2021. Meanwhile, chemical demand is set to hit 641,000 MT of lithium carbonate equivalent in 2022, up from 342,000 MT in 2020 and an estimated 504,000 MT in 2021.

As with rising prices, lithium M&A did not pause either, with high activity until the very last days of 2021. In October, China's Zijin Mining Group (OTC Pink:ZIJMF,HKEX:2899), known for its copper and gold production, agreed to acquire Canadian company Neo Lithium (TSXV:NLC,OTCQX:NTTHF) and all of its assets in Argentina.

In November, after outbidding China’s major battery producer, Lithium Americas (TSX:LAC,NYSE:LAC) acquired Argentina-focused Millennial Lithium in a US$400 million stock/cash deal.

To end the calendar year, Rio Tinto said it acquired the Rincon lithium project in Argentina for US$825 million. But it was not all good news for the giant miner; its Jadar lithium project was put on hold following environmental protests, leading the company to pause its plans and call for an open dialogue with the community.