Lithium Market 2022 Year-End Review

Lithium market in Q1: Price rally continues

EV demand has been driving lithium prices higher, and as mentioned, analysts are optimistic about the market going forward. During Q1 of this year, prices increased more than 126 percent year-on-year, according to Benchmark Mineral Intelligence data.

“Following the price rally in the Chinese domestic market in Q4 2021, there was an expectation that lithium prices would continue to climb in early Q1 on the back of reports that the market remained exceptionally tight,” Benchmark Mineral Intelligence Senior Analyst Daisy Jennings-Gray told the Investing News Network (INN).

“However, as per every significant price milestone lithium has hit in the last year, each month brought fresh highs that many didn't think would be achieved so quickly,” she said at the end of Q1.

Motivated by high lithium prices and the desire to meet the surging demand, companies shared news about ramp-ups, restarts and expansion plans during the first three months of the year. “But the quarter definitely painted a clear picture of the disconnect between lithium supply and downstream demand from the EV industry,” Jennings-Gray added.

With that in mind, all eyes turned to the year's expected ramp-up and expansion projects.

“A handful of Australian and Chilean ramp-ups remain the biggest risk to our forecast,” CRU Group’s Martin Jackson told INN in Q1. “There is enough incentive for these to exceed expectations and maximize returns.”

Similarly, Benchmark Mineral Intelligence’s Jennings-Gray said the success of these expansion and restart projects would play a part in the reality of how tight the market was by the middle of 2022.

“Furthermore, the effect on the spodumene feedstock bottleneck and the price for which any available spodumene material goes for on the spot market will be a defining factor in showcasing market sentiment,” she said.

Lithium market in Q2: Bearish supply calls put pressure on stocks

During Q2, COVID-19 lockdowns in China, particularly Shanghai, gave rise to an unexpected hit on demand from the EV sector, with a number of vehicle manufacturing plants shutting down over April.

“Given growing concerns over rising COVID-19 cases in China, combined with reports that Chinese regulators were looking to prevent prices from climbing so rapidly, there were some expectations at the beginning of Q2 that lithium prices might not see the same upward climb experienced in Q1, with this expectation coming to reality,” Jennings-Gray said.

Speaking with INN at this year’s Fastmarkets Lithium Supply and Raw Materials conference, William Adams of Fastmarkets said the demand pullback would be temporary. “What we're seeing is just a pause on the demand side because of the lockdowns in China,” he said. “And I think it's more that consumer demand has been constrained rather than falling back.”

As lockdown measures eased, Adams was expecting lithium prices to move higher.

“I don’t think we’ve seen the peak in prices yet,” he told INN at the event, which was held in Phoenix, Arizona. “We expect to see that towards the end of this year, or maybe the first quarter next year.”

On the supply side, availability of material from domestic Chinese brine resources ramped up as expected over late Q2 as warmer weather improved seasonal evaporation rates, analyst Daisy Jennings-Gray told INN.

During Q2, investment bank Goldman Sachs (NYSE:GS) released a report that increased investors' worries over potential excess lithium supply; the bank also predicted a sharp correction in prices by the end of next year.

However, for Benchmark Mineral Intelligence, the lithium 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 ramp-up of marginal, unconventional feedstock will fill the deficit. It is also unlikely that demand will weaken significantly,” analysts at the firm said in June.

Similarly, iLi Markets' Daniel Jimenez doesn’t think supply will be able to catch up with demand at least until 2026 to 2027, mainly because of the difficulty of bringing greenfield projects into production at full capacity. “Over this period of time, lithium should be the limiting factor in EV sales,” he said. “Even with demand growing very strongly, the investments the industry is making today might yield additional capacity in six to 10 years from now that we are not able to see today.”

Lithium market in Q3: Price momentum continues

In Q3, lithium prices in the Chinese domestic market saw strong upward momentum, Jennings-Gray said.

“(This was) signaled towards the end of Q2, when COVID-19 restrictions were lifted in Shanghai at the start of June,” she explained to INN. “With demand picking up towards the end of the quarter, and ahead of Golden Week holiday, domestic prices sustained upward momentum throughout the quarter, hitting fresh highs in September.”

Despite the macroeconomic headwinds, the Chinese domestic market appeared to be unaffected by the economic downturn, with the EV industry performing well even though other sectors were experiencing weakness.

“Outside of China, there have been murmurs of weakening demand from traditional sectors, particularly in Europe and North America, although this had little downward bearing on pricing as supply remained very tight,” Jennings-Gray said at the end of Q3.

Looking over to supply, production from the brine projects in China's Qinghai province was anticipated to wane entering the winter months amid cooling temperatures cool and slower evaporation rates.

“At the same time, there is limited additional supply expected to come online or ramp up during the quarter, and with demand expected to continue to grow, it looks as if supply is set to tighten even further,” Jennings-Gray said.

Looking forward to prices, Benchmark Mineral Intelligence was expecting little downside to pricing in Q4 as demand was ready to ramp up; without any extra supply coming to market, availability of material looked set to be even tighter.

Lithium market in Q4: Demand remains bright

Lithium continued to hold on to high levels throughout Q4, even though prices started to slip by the end of the year.

“We expected prices to continue to climb in 2022, but not as much as they ended up doing,” Adams told INN. “That said, having reached a high at 512,500 yuan per tonne in March, we did not think we had seen the high. We expected prices to rise further before dipping towards the end of the year.”

Commenting on lithium demand during a panel at this year’s Benchmark Week, Ashish Patki of Livent (NYSE:LTHM), which operates its lithium business in the Salar del Hombre Muerto in Argentina, said one of the best ways to bring back what’s happening in the supply chain and put it in terms of lithium demand is to look at cathode output.

“China is the center of cathode output … this year's lithium-iron-phosphate output in China is easily on track to cross 1 million tonnes compared to about 400,000 tonnes last year,” he said. “Nickel-cobalt-manganese 811 in terms of output in China is in the number two position, and what we are seeing is 100 percent growth year-over-year as well.”

Patki’s demand estimate for 2023 is that the industry will need a million tonnes of lithium carbonate equivalent.

“Again, whether there's supply that will be able to meet that, that's the big question,” he said. “(Furthermore) many of us in the industry, we tend to understate, underestimate the brand of applications of lithium-ion batteries.”

For the business development director at Livent, if supply cannot catch up, demand will be deferred, not destroyed.

“If there is not enough supply available of raw materials, it will just carry over into the next year,” he said. “It will just keep ballooning even more than anybody would think.”

For lithium miners trying to develop projects and bring supply on stream, financing continues to be a big hurdle.

“Funding has happened, but it's not happening still at a rate that anyone needs. Institutional money is still not as aggressive as it should be,” said Simon Moores of Benchmark Mineral Intelligence. “And then, if they get the money to take it to the permitting stage, then permitting is a massive hurdle — it can add 50 percent of the time onto building your mine.”

The US and Canada are both said to be reviewing the permitting process for new mines as they continue to push for more domestic and regional supply of key raw materials, including lithium.

As of December 12, 2022, Benchmark Mineral Intelligence’s lithium index was up 152.4 percent year-to-date, with that number increasing to 182.6 percent on a year-on-year basis.