As the middle of the decade approaches, here are five things lithium investors should consider based on comments from expert market watchers.
After a couple of years in decline, lithium made a U-turn at the end of 2020, rallying to unprecedented price levels. It's currently still holding on to gains.
This all took place in the middle of a pandemic that hit every market and made the world stop, as well as the outbreak of the Russia-Ukraine war and recession fears in major economies.
As the decade unfolds, forecasts of supply constraints — and the occasional oversupply call — are making it difficult for the market to be anything but volatile, while demand from electric vehicles (EVs) remains robust.
In a time when making predictions is becoming a difficult task, the Investing News Network (INN) looks at what investors should expect to see in the lithium market from now until 2025. Here are five things to keep in mind.
1. Increasing demand from EVs
The adoption of EVs in major regions has become for many an unstoppable trend.
The International Energy Agency estimates that 6.6 million EVs were sold last year, and even with automakers facing supply chain constraints and production challenges, this number is only predicted to keep increasing.
For its part, BloombergNEF sees passenger EV sales rising to 21 million units in 2025. “EV manufacturers are contemplating a market for battery raw materials that is very tight for the years ahead,” analysts at the firm said. “The battery supply chain will require significant near-term investment to avoid a supply crunch.”
Battery costs have been rising on the back of raw material price hikes, inflation and the Russia-Ukraine war, among other factors. But rising costs from batteries will not derail near-term EV adoption.
“Some of the factors that are driving high battery raw material costs — war, inflation, trade friction — are also pushing the price of gasoline and diesel to record highs, which in turn is driving more consumer interest in EVs,” BNEF analysts said. As EV adoption increases, the need for battery raw materials, including lithium, will also climb.
Read more about the electric car market in our quarterly update here.
2. A tight market
If demand for EVs is surging, so is the need for lithium to power its batteries. But lithium supply is not keeping up.
“As a result of surging EV battery demand and a lack of new supply, pressure on the critical minerals that fuel lithium ion battery production have been increasing,” Benchmark Mineral Intelligence’s Simon Moores said earlier this year. “And right now, there is not enough of these raw materials in the pipeline to take the majority of EV makers beyond 2030.” For Benchmark, the market will remain in structural shortage until 2025.
"The lithium market will balance over the next few years, but it’s unlikely that an unprecedented rampup of marginal, unconventional feedstock will fill the deficit," Benchmark said in a June note in response to Goldman Sachs' (NYSE:GS) excess supply forecast. "It is also unlikely that demand will weaken significantly."
When looking at demand projections from lithium majors even just to 2025, it is difficult to see where supply will come from. “Structurally, the industry just does not have the talent, the assets and the government support in some of the countries where permitting takes forever, to do it,” Joe Lowry of Global Lithium told INN in June.
Listen to the full interview with Joe Lowry here.
3. Prices staying at high levels
Lithium prices climbed to all-time highs last year, and have surpassed those and remained at historic levels so far in 2022. Prices have in fact gained more than 100 percent year-to-date, and it’s not only spot prices — lithium producers have said contract prices are also up, with some moving from fixed to more variable pricing contracts.
With supply delays and demand climbing, prices are expected to remain at high levels in the next few years.
“As demand gallops forward at 20 percent a year, and you have potential supply chain problems or supply addition problems, I think that from a pricing perspective, you're going to see lithium, on a contract and a spot basis, well above US$20,000 a tonne,” Chris Berry of House Mountain Partners told INN back in June.
“I just don't think that would go anywhere near south of that.”
For Berry, the lithium market will equilibrate between spot and contract pricing in the near future. “I think you're probably going to start seeing that in the next … 18 months,” he said.
Listen to the full interview with Chris Berry here.
4. The west rethinking its electrification strategy
As costs for EV makers remain high, alternative strategies for pushing forward with electrification are emerging.
“We in the west have placed a large emphasis on battery electric vehicles, on a need for very large batteries, because once a year we decide to drive for six hours somewhere and we want to be able to make that entire drive without worrying about stopping and recharging the car,” Jon Hykawy of Stormcrow Capital told INN.
“What we've ended up with as a result are uneconomical vehicles with large batteries that consume an awful lot of critical materials without really giving us any corresponding benefit in terms of massive reductions in carbon emissions," he said during the June conversation.
In looking at critical materials, the expert said he examines what the likely outcome is in terms of where the technology is taking and should be taking us.
“If we start to move towards things like plug-in hybrid EVs, we can start to envision smaller batteries, yes, but a lot more vehicles will continue to need lithium. We won't need as much nickel or cobalt because energy density is no longer the primary requirement,” Hykawy said.
“So on a critical materials basis, as I look forward to five to 10 years, I still think we need plenty of lithium. I'm less concerned about nickel and cobalt, although obviously those demands will increase.”
Listen to the full interview with Jon Hykawy here.
When asked about what she expects to see until 2025, CEO of Luna Lithium Emily Hersh said the next few years can be summed up in one word — chaos.
“You've got lithium spot prices that are ridiculous. You've got the majority of folks who are investing in lithium, who don't understand that the majority of lithium does not trade on said spot price. We have an undersupply for the better part of the next decade. But we're also about to go into a recession,” she said.
“And when there's recession, interest rates go up, things slow down. There's the hodgepodge of macroeconomic events upon which the growth of the lithium industry is taking place that is very hard to predict.”
That said, Hersh is bullish on lithium.
“I think we're in the beginning of a battery supercycle, but I do think the next couple of years are going to be chaotic. And that's challenging,” she said. “This is a macroeconomic setting that most people have not encountered in their lives, and macroeconomic instability makes people act crazy. So I think we're gonna have some chaos, but folks who keep cool heads and stay the course are going to make a lot of money off it.”
Listen to the full interview with Emily Hersh here.
Don't forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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