Strong Lithium Demand Ahead — Will Supply Keep Pace?

Lessons learned from lithium's price run

Lithium prices hit historical highs last year following a rally that began at the end of 2020. When asked what lessons have been learned from that season, Lowry said probably very few and that only time will tell.

“I think we have seen abject panic, which is what ran the price up … market forces took it to the US$80,000 (per metric ton) range roughly, and it probably shouldn’t have happened,” he said.

Lithium spot prices continued to climb throughout 2022, but in November they turned to the downside, falling by about 50 to 70 percent. Prices finally began to stabilize and move upward again in May.

For Tara Berrie of electric vehicle maker Rivian (NASDAQ:RIVN), lithium company share prices are hypersensitive to spot prices, which in the end are just noise and distraction.

“From an investor perspective, we need to learn to be able to cut out the noise and look at (the fact that) there will be a fundamental shortfall," said Berrie, who previously worked at Tesla (NASDAQ:TSLA), Allkem (ASX:AKE,OTC Pink:OROCF) and Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO). "Investment has to continue, otherwise any delays will extend project timelines that are massively long already.”

Aside from spot price movements, investors tend to be hesitant to jump into lithium because of the industry's track record when it comes to the rollout of mining projects.

“It always seems to take longer — it always seems to cost more,” Berry said. “You can get (a refinery) permitted and built in three to four years, not 10 to 15 that it will take for a mine, and ideally you are selling a very high end value product even though none of it is relevant without much more raw material supply.”

Lithium supply in the short term

Looking at the short-term supply and demand dynamics in the lithium space, it is important to remember that demand is not just a function of what is being consumed, but also the allowance to build out working stock.

“To satisfy the demand for lithium from a producer perspective you need to not only supply the client, but also to have all the inventory in the pipeline — that alone is at least three months of production,” said Jimenez, who previously worked at SQM (NYSE:SQM).

“So if we say the lithium industry will be close to a million tonnes this year, we know we have an inventory today of about 250,000 tonnes in the pipeline. So inventories play a key role in this high-growth rate of consumption,” he added.

Ashish Patki of Livent (NYSE:LTHM) pointed out that it is also important to consider who is holding inventories of lithium when looking at short-term supply.

“Is it lithium producers who have finished goods inventory, or is it some traders who are now getting active in this growing industry and are keeping some stocks to benefit from the price movements that happen?” he said. “Those nuances matter when it comes to overall industry demand and supply. Time of the year also matters — both demand and supply are seasonal.”