Lithium Market Update: Q2 2023 in Review

How did lithium prices perform in Q2?

Lithium prices hit all-time highs in 2022, but they kicked off 2023 under pressure after falling in Q4 of last year.

On the supply side, COVID-19 disruptions, slow restarts of idled capacity and new supply delays all fueled the price rally that the market saw from 2021 to 2022, according to Fastmarkets. Meanwhile, on the demand end, government stimulus and a destocked market also supported the upward trend in pricing.

“Prices peaked in November, and they started to correct, and they corrected heavily,” William Adams of Fastmarkets said. “Prices have started to rebound … although we didn’t expect the selloff to be as sharp as it was.”

Speaking with the Investing News Network (INN), Rodney Hooper of RK Equity said that last year there was a greater deficit than expected as the downstream stocked up.

“Then we started this year with a bit of weakness in China with electric vehicle (EV) sales, but that's come back as of May,” he said. “The economics of lithium are playing out as expected … we've come back to where I think is a fair position for the year.”

What is the lithium supply and demand forecast for 2023?

Looking at supply for the rest of 2023, Benchmark Mineral Intelligence has marginally lowered its forecast.

“While we have had a couple of announcements of delays to projects coming online this year, these are not out of the ordinary for the lithium market, especially for market entrants,” Megginson said. “But overall the supply side has been robust.”

Mergers and acquisitions have been a trend in the lithium market this year, with the biggest news coming in the first quarter after lithium producers Allkem (ASX:AKE,OTC Pink:OROCF) and Livent (NYSE:LTHM) said they will join forces.

“The trend of consolidation in the market is something to look out for as it can result in greater market concentration, potentially either reducing buyers' choice or increasing the hurdles for market entrants,” Megginson said. “On top of this, maintaining or increasing the consistency of output material is a key challenge for any lithium producer, but especially newer producers.”

Looking over to demand, Fastmarkets' William Adams told INN he expects it to pick up towards the second half of the year.

What's ahead for the lithium market in 2023?

The third quarter of the year is well underway, with a few key catalysts lithium-focused investors should keep an eye out for.

Megginson said it is important to remember that there tends to be a summer lull in purchasing activity in the lithium market, especially in Europe and North America.

“As the end of Q3 nears, purchasing activity often increases,” he said. “If downstream demand is robust and inventories have been worked through, this could lead to a price rally. Otherwise perhaps the short-term equilibrium we are currently experiencing could go on and prices stay flat, or even fall given current strong supply trends.”

Similarly, Adams said it is unlikely that prices will go back up to the highest levels seen last year.

“We've seen a rebound off the lows we saw in April,” he said. “I personally think we might go a little bit higher, but then we're going to probably meander sideways to possibly a bit lower as the market consolidates.”

For Jimenez, who formerly worked at top lithium producer SQM (NYSE:SQM), prices could be higher by year end. “I don't see it as impossible that we see US$60,000 or US$70,000 (per metric ton) price levels again towards the end of the year,” he said.

Commenting on what the market might seem in terms of prices, Hooper said the downstream doesn’t seem to like anything higher than US$50,000 per metric ton, but it is not always in control.

“If we see a recovery in EV demand going up towards the end of the year, I think energy storage can add to that, and we could see something of a price squeeze, or slightly higher prices towards the end of the year,” he said.