Lithium Market Update: Q3 2022 in Review

Lithium market update: Price performance

Lithium kicked off the year on a positive note, with prices trading at all-time highs on the back of increased demand from the electric vehicle (EV) sector. Throughout the first half of the year, prices stabilized at historical highs and remained higher than expected due to renewed demand from China post-lockdowns.

So far in 2022, prices have increased more than 123 percent, according to Benchmark Mineral Intelligence data.

In Q3, lithium prices in the Chinese domestic market saw strong upward momentum, Daisy Jennings-Gray of Benchmark Mineral Intelligence told the Investing News Network.

“(This was) signaled towards the end of Q2, when COVID-19 restrictions were lifted in Shanghai at the start of June,” she said. “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 appears so far to have been unaffected by the economic downturn, with the EV industry performing very well even though other sectors have experienced 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.

Lithium market update: Supply and demand

The EV industry is the main lithium demand driver, and the sector has been experiencing growth year after year. According to the International Energy Agency (IEA), EV sales hit a record high in 2021, despite supply chain bottlenecks and the COVID-19 pandemic.

Compared with 2020, sales nearly doubled to 6.6 million in 2021. In the first quarter of 2022, EV sales came to 2 million, a 75 percent increase compared to the first three months of 2021.

Sales increased further in H1 2022, and the IEA estimates that EVs will account for around a 13 percent share of the market.

That’s good news for lithium, which has seen demand remain strong as a result. In the third quarter, within China, carbonate demand remained robust due to strong demand for lithium-iron-phosphate battery chemistry.

“However towards the end of Q3, hydroxide pricing began to also gain some momentum as automakers looked to increase production rates to improve sales figures ahead of the China EV subsidies being removed on January 1, 2023, even for high-nickel chemistries, which have generally seen less market share so far in 2022,” Jennings-Gray said.

Internationally, hydroxide remains at a premium to carbonate under tight supply, as per Benchmark Mineral Intelligence data.

The last quarter of the year is typically the strongest period for EV sales in China, and with the subsidies set to end on January 1, 2023, automakers are already picking up production rates to improve sales figures beforehand. “As such, demand from the battery manufacturers and cathode producers is expected to pick up significantly,” Jennings-Gray said. “On the flip side, it does seem traditional industries are shrinking slightly, but given how tight supply is, it’s looking like any additional relief this could provide on the demand side will have minimal impact, with any extra material snapped up by the battery sector.”

Looking over to supply, production from the brine projects in China's Qinghai province will begin to wane entering the winter months, as temperatures cool and evaporation rates slow down.

“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.

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

As the fourth quarter of the year continues to unfold, there are a few factors that could impact the lithium space.

One catalyst for the market to keep an eye on is how quickly spodumene producers, which are targeting a capacity ramp up by the end of the year, are able to achieve their ambitions, Jennings-Gray said.

“The lithium market facing further supply delays could drive upward pricing sentiment," she noted.

EV sales in China will also be a key factor in the last quarter of the year, as record-breaking figures so far in Q3 look to point towards a very strong Q4, which is typically the quarter with the best production and sales figures.

“Developments in South America in regards to nationalism of resources will also be key, with the region playing such a vital role in the lithium market. And of course, any clarifications or developments in the Inflation Reduction Act legislation in the US could further boost investment into projects in North America or Free Trade Agreement countries,” Jennings-Gray said.

In terms of how prices could perform going forward, Benchmark Mineral Intelligence expects little downside to pricing in Q4 2022 as demand is set to ramp up; without any extra supply coming to market, availability of material will be even tighter.

In China, it seems that hydroxide is already closing the gap that carbonate pricing has developed, Jennings-Gray said, as automakers of EVs with high-nickel batteries ramp up production and therefore drive up hydroxide demand.

“Additionally, with spodumene prices continuing to rise, this limits any hydroxide downside, and thus it seems the two chemicals are likely to perform near to parity in Q4 within the domestic market,” she added.

Outside of China, the extremely tight supply of hydroxide combined with its production cost from carbonate means it is very likely to stay at a premium above carbonate.

“Particularly in Japan and Korea, where demand from cathode manufacturers has remained stable but high through most of the year,” Jennings-Gray added.