Spodumene projects may slow lithium price surge

Global lithium prices have been largely on the rise over the past year, boosted by the global transition to a new generation of energy markets, but new resources could ease pressure on supply and demand

The resilience of lithium prices contrasts with the volatility in many other metals markets, especially in the current context of high inflation, high energy costs and a gloomy macroeconomic environment.

But during the annual Nickel & Cobalt conference hosted by Chinese information provider Antaike from November 2 to 4 in Changzhou, China, market participants expressed concern that lithium bullishness in China may end in 2023. They cited downward pressure from the end of the electric vehicle (EV) subsidy in China and upcoming new supply.

Fastmarkets’ assessment of the lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 590,000-605,000 yuan per tonne on Thursday November 17, widening upward by 5,000 yuan per tonne from 590,000-600,000 yuan per tonne a week earlier. The latest assessment has gone up by 89.68% from 300,000-330,000 yuan per tonne on January 6.

The assessment for the lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price range, exw domestic China was 580,000-590,000 yuan per tonne on November 17, unchanged from a week earlier. The latest assessment has gone up by 138.78% from 240,000-250,000 yuan per tonne on January 6.

2023 to bring headwinds, especially in Q1

Since China’s EV subsidy will end as of the start of 2023, there are worries that EV consumption in China may increase in the fourth quarter of 2022 as consumers purchase EVs before the subsidy ends, displacing first-quarter 2023 consumption.

The market may consequently experience a retreat in EV demand in the first quarter of 2023 as well as a shift in the demand for lithium from the first quarter of 2023 to the fourth quarter of 2022, Fastmarkets heard at the annual Nickel & Cobalt conference in Changzhou.

China’s Finance Ministry – along with the Ministry of Industry & Information Technology, the Ministry of Science & Technology and the National Development & Reform Commission – announced on December 31, 2021 that the country’s EV subsidy policy would be discontinued at the end of 2022 and that EVs licensed after that would enjoy no subsidies.

Under the existing policy for 2022, the subsidy for pure electric vehicles (PEVs) with a driving range of 300-400km is 9,100 yuan per vehicle, while the subsidy for PEVs with a driving range of 400km or more is 12,600 yuan per vehicle.

Market participants have also expressed concerns that the early Chinese New Year in 2023 (January 22), will also push much of the lithium demand from the first quarter of 2023 into the fourth quarter of 2022, leading to weaker lithium demand at the beginning of 2023 and a drop in lithium prices.

“Due to the Chinese New Year, domestic logistics will start to slow down entering January and won’t return to fully normal until February,” a Chinese battery materials producer source said, adding that “Chinese lithium producers usually put their facilities on maintenance during the holiday.”

“So lithium consumers will slow down new purchases after January and ask their orders scheduled for January to be delivered before January as much as possible,” the producer source said.

“Q1 in 2023 is important, and I think prices will start to trend down from then,” a second Chinese battery materials producer source said.

The upcoming lithium supply in 2023, on the other hand, can help ease the current tightness in the lithium market and consequently cool down lithium prices, market participants said.

Fastmarkets’ research team forecast lithium carbonate equivalent (LCE) demand for 2022 to be 698,900 tonnes, increasing to 884,400 tonnes in 2023. Supply will increase from 679,400 tonnes of LCE in 2022 to 895,900 tonnes in 2023, leaving the market in a slight surplus of 11,500 tonnes.

The Wodgina spodumene mine, owned by lithium producers Mineral Resources and Albemarle, is preparing to commission its train 3 line, which could bring online an additional 250,000 tonnes of spodumene concentrate per year. Earliest production is expected from mid-2023, subject to market conditions, according to Mineral Resources.

The Mt Marion spodumene project, owned by Mineral Resources and Chinese lithium producer Ganfeng Lithium, is also expected to be further ramped up to 900,000 tonnes per year of mixed grade spodumene concentrate by early 2023, from 450,000 to 600,000 tonnes per year.

Australian lithium miner Core Lithium expects to export its first spodumene concentrate in the first half of 2023.

“The extreme tightness in the lithium market, especially seen in the first quarter of this year, is not likely to be repeated in 2023,” a Chinese lithium producer source said.

Fastmarkets’ fortnightly assessment of spodumene min 6% Li2O, spot price, cif China was $7,800-8,000 per tonne on November 20, unchanged from two weeks earlier, but up by 216% from $2,400-2,600 per tonne on January 6.

Signs of weakness already emerging

The uptrend in China’s lithium prices has slowed in the past two weeks, with market participants citing strong resistance to the current high prices as well as caution among consumers fueled by the significant drop in local futures prices in the week to Thursday November 17.

Despite the overall bullishness in the lithium market and the strong demand for the metal in recent years, the drop in lithium prices was precedented in China during March and April.

Back in March, China’s Ministry of Industry and Information Technology (MIIT) called on the lithium industry to slow the fast pace of price increases for lithium chemicals. During the same month, the country’s financial hub of Shanghai implemented a city-wide lockdown to contain the spread of Covid-19, which curbed downstream demand for lithium chemicals.

On China’s Liyang Zhonglianjin E-Commerce platform, lithium carbonate contracts have also been in a backwardation, with the contracts traded at lower prices on the forward months between November 2022 and April 2023.

Supply uncertainties remain

Although the lithium market is forecast to be in a surplus in 2023, market participants still expressed concerns that the market will remain tight.

“Any surplus is relatively small in terms of the total market size, and all it takes is one or two projects to be delayed to swing the balance to a deficit,” Jordan Roberts, Fastmarkets’ battery raw materials analyst said.

There is also a risk that the demand for lithium carbonate and hydroxide cannot be separately met, even if the market is in a surplus when the two chemicals are looked at together as LCE, market participants said

“This balance cannot respond to the preference of each customer,” a Japanese lithium trader said. “One customer will need hydroxide while another will need carbonate, and hydroxide consumers cannot use carbonate, and vice versa. But the numbers for LCE do not distinguish these preferences.”

“The supply and demand may not be matched at the same time as well, and the market can be undersupplied during a specific period even though, when looked at over the whole year, the market is in a surplus,” an analyst source told Fastmarkets.

Visit our dedicated battery materials page to discover more insights on the factors at play in the industry in 2022 and beyond.

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