Lithium Market Update: Q3 2021 in Review

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Lithium prices and stocks have been on the rise so far this year.

Demand from the electric vehicle sector has proved to be strong since the start of 2021, with forecasts showing no sign of slowing down.

Carmakers continue to race for supply as governments also push to transition to green energy and pledge to reach net zero emissions in the coming decades.

But how did lithium perform in the third quarter of 2021, and what’s ahead for the metal in the near term? Read on for an overview of the main news that impacted the lithium market in Q3, plus a look at what investors should watch out for the rest of the year.

Lithium market update: Price performance

Prices increased at an unexpected speed during the first three months of the year, on the back of strong demand from the electric vehicle market. In Q2, the market did not take a break and continued its positive trend for both chemical and feedstock prices.

Benchmark Mineral Intelligence’s George Miller had predicted a higher price environment in Q3, given strong demand-side dynamics and little 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 contract prices to continue to move higher reflecting spot price gains from earlier in the year.

“Prices rose sharply in Q3 in response to spot supply tightness,” James Jeary of CRU told INN. “The extent of the gains was surprising, and how fast they moved.”

Lithium producers saw earnings and profits rise on the back of the price increase, with China’s Tianqi (SZSE:002466) posting its first net profit in 2 years and Ganfeng (OTC Pink:GNENF,SZSE:002460) reaching a record profit in Q2 on the back of the rally.

Chile’s Albemarle (NYSE:ALB) also posted a higher-than-expected second quarter profit, with lithium sales jumping 13 percent as long-term customers accelerated their contracts and took supply early, the company said.

Meanwhile, rival SQM (NYSE:SQM) saw its earnings jump on higher lithium prices and soaring EV demand. Earnings in the first half of 2021 were up 65 percent over the first six months of 2020, the company reported.

Argentina-focused Livent (NYSE:LTHM) also posted better-than-expected results in Q2, boosting its sales and earnings forecast by at least 10 percent and 38 percent, respectively, for 2021.

Lithium market update: Supply and demand

Demand from the electric vehicle industry has been picking up pace since last year, with numbers increasing in 2021, not only in China but in other key markets such as Europe.

China shows no signs of slowing at the moment, with September seeing a new record for NEV sales, according to CRU.

“Europe and the US will likely remain strong, although the year-on-year growth in Europe may be less because of the strong Q4 last year,” Jeary said.

Miller agreed, saying EV demand should remain strong, with Q4 typically being the best quarter for vehicle sales.

“Widespread change in policy and subsidization could delay/derail this trend, but ultimately consumer acceptance of EVs is growing regardless,” he added.

Speaking about the key challenges for lithium miners to supply the market, 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 disruption 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.

Benchmark Mineral Intelligence anticipates a small deficit to open up 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.

As demand for lithium continues to increase, all eyes are on output and whether the industry will be able to meet the needs of the growing EV industry. So far, 2021 has proven to be a year where investments, mergers and acquisitions have been strong.

“Investment in the sector has absolutely picked up,” Miller said. “Yet with long lead times to production, this will continue to be an area of concern — the rate and volume of investment needs to persist and even increase to address mid and potentially long term supply deficits.”

Despite the amount of investment announcements the market has seen in recent months, a lot of projects will only come online from the mid-2020s onwards.

“In the meantime it is important that brownfield supply sources come online in a timely manner to provide additional volumes to the market,” Jeary said.

Lithium market update: What’s ahead for prices and key catalysts to watch

Commenting on what’s ahead for prices this year, Jeary said there will be strong support for prices in Q4, given prevailing spot tightness in China.

“Increased spodumene availability could add some downside pressure but prices will likely be underpinned by strong EV demand,” he added.

For Benchmark Mineral Intelligence, there’s little potential for downside in pricing.

“(That’s because of) the step-change we have seen in demand compared to incremental growth on the supply side of the industry,” Miller said. “Given current market fundamentals, the price level is sustainable in the near-term.”

Looking at what factors could impact the space in the last quarter of 2021, the CRU analyst said government subsidies and OEM pledges will be important in determining EV uptake.

“Any announcements related to mine expansions or the progress of restarts will also be important for determining supply over the next few years,” he said.

For Miller, some key catalysts to watch in the next three months include energy shortages in China, related to China-Australia trade tensions, and Q3 reporting from lithium majors, especially surrounding 2022 contracting.

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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.