Lithium price rebound could be short-lived: analysts

Lithium prices halted their freefall in July, rebounding on strong sales of electric vehicles and supply curtailments in China, but experts cautioned that the price recovery could soon fizzle under pressure from long-term market surpluses.

A global oversupply of lithium has been driving down prices from the stratospheric highs of 2023, but few producers have been willing to reduce output as they wait for prices to strengthen.

The lithium carbonate DDP China price, also known as battery-grade lithium, rose 14.7% between June 2 and July 23, reaching Yuan 68,500/mt ($9,544/mt) after dropping to Yuan 59,000/mt on June 20, assessments by Platts, part of S&P Global Commodity Insights, showed. Similarly, the Platts-assessed lithium carbonate CIF North Asia price rebounded 2.4% from $8,300/mt on June 2 to 8,500 $/mt July 23.

Platts-assessed lithium spodumene 6% FOB Australia saw a more extreme correction, gaining 28.4% for the analyzed period, up from $580/mt on June 2 to $745/mt June 23, after plunging 27.5% in the prior two months.

"Lithium prices rebounded in July after falling to multiyear lows in June, spurred by an optimistic demand outlook as China's PEV sector increased orders in anticipation of the peak demand season," Mary Nyah Alcantara, analyst at Commodity Insights, said. "At the same time, supply disruptions in China heightened concerns about insufficient material availability for delivery during this period of increased demand."

EV sales strong

Global demand for lithium, a metal essential for the production of EVs and energy storage systems, is projected to grow 80% over the next five years, according to S&P Global Market Intelligence data. The primary driver for the lithium consumption is robust EV sales in China and the EU, supported by government incentives and declining production costs. China rolled out an EV promotion campaign in rural areas that has led to higher car sales across the country.

"China's passenger PEV sales exceeded 1 million units for the second consecutive month in June, achieving a record penetration rate of 53%," analysts said in a July CBS report. China's uptake of PEV has remained above 50% since March, and uptake in Europe has stabilized at about 26%-29% in the first half of the year, according to Market Intelligence data.

PEV cars include pure battery-electric vehicles (PEVs) and plug-in hybrid electric vehicles (PHEVs).

Supply curtailments in China

But strong demand growth is just one side of the equation. The immediate trigger for the upside momentum in the lithium market appears to be some capacity shutdowns across Chinese assets. These include halted brine production at Zangge Mining Company Ltd.'s Qarhan Lake and Jiangxi Special Electric Motor Co. Ltd. Yichun lepidolite mine, which began a 26-day maintenance period July 25.

Production shutdowns across China represent roughly 5% of the global lithium output, and are mostly a result of environmental and export controls, according to Federico Gay, a principal lithium analyst at Benchmark Mineral Intelligence.

"There is up to 10% of global supply that is currently at risk ... Some Australian producers might be next. But this might take some months to materialize," Gay told Platts.

Australian lithium producers said during their second-quarter earnings calls that price recovery was much needed and welcomed, but it is too early to judge whether it will hold.

Deeper supply cuts needed

Long-term market fundamentals remain bearish, according to analysts, and a sustainable price recovery will hinge on deeper production cuts.

"The reality is that the fundamentals of supply and demand are still bearish, we are in an oversupplied market, and this slight price recovery might be short-lived, mostly based on sentiment," Gay said.

Lithium prices are not expected to find their floor for the next two to five months before a sustainable rally begins, the analyst said.

Also, a short-term bump in lithium prices could delay a supply reduction that is needed to rebalance the market.

"For now, higher lithium prices will encourage higher production across both mines and refineries, at a time when the market is already oversupplied," Commodity Insights analysts said.