Lithium Outlook 2020: The Lithium Decade Begins
With electric vehicle (EV) sales and energy storage forecasts increasing at an unstoppable speed, many believe the 2020s will be the decade for lithium and other battery metals.
Despite having a tough couple of years, with prices declining at a rapid pace, experts agree that lithium seems to have a bright future ahead.
Here the Investing News Network looks at lithium’s 2019 price performance, what analysts had to say about the market and what’s ahead for the metal in 2020.
Lithium trends 2019: Price decline overshadows strong demand forecasts
As many expected, China remained a main driver of the lithium story in 2019, with EV subsidy changes in the country impacting demand for battery metals across the board.
“Everyone is still focused on China and the fact that EV sales are slowing down,” Chris Berry of House Mountain Partners said. “There’s still year-over-year growth, but the fact that the rate of change in decline has accelerated somewhat is a bit concerning.”
Speaking about 2019, Benchmark Mineral Intelligence Managing Director Simon Moores pointed to what he calls the lithium-ion supply chain paradox.
“The price is down. It obviously gets people upset,” he said. “Prices in our lithium chemical index are down on average 12 percent, but demand is up 18 percent. What industries in the world have growth of 18 percent a year and you can walk around the industry and everyone is depressed?”
Lithium expert Joe Lowry of Global Lithium also mentioned the decline in prices, but he said he didn’t expect it to be a top story in 2019. “The story is (EV) growth, storage growth, and the product that supports that is not the one that sells for US$7,000 per tonne.”
William Adams, head of base metals and battery research at Fastmarkets, said that in 2019 the decline in spot prices in China led the way on the downside, with China, Japan and Korea following. He also mentioned the narrowing premium for lithium hydroxide over lithium carbonate.
“While we expected carbonate and hydroxide prices to reach near parity in 2020, we have been surprised just how fast the hydroxide premium has narrowed.”
Fastmarkets was also expecting that — due to likely large supply surpluses, cash flow issues and the difficulty of storing some lithium products — the upstream supply chain would adjust supply to avoid the buildup of large surpluses.
“We have seen production cuts and even some legacy producers say they will stockpile material, thereby adjusting supply to the market,” Adams said.
Roskill Consultant Jake Fraser agreed that the main trend has been the decline in prices, but said what’s more important is the regional disparity between China and ex-China pricing.
“(T)he latter (is) the weaker of the two, driven by a narrative of both raw material feedstock and refined lithium compound oversupply domestically.”
For CRU Group’s George Heppel, 2019 was characterized by two main trends. The first one was lower-than-expected demand, with China’s EV market slowing partially due to lower subsidies and an auto market slowdown, but mostly because it lacks the capacity to manufacture enough good-quality EVs.
The second main trend for the expert has been the conversion capacity ramp up in China.
“Many have been far too quick to dismiss China’s ability to ramp up battery-grade conversion capacity due to quality considerations — it’s a story we’ve seen play out time and again in the commodities and chemicals space,” he said. “Large quantities of cheap Australian spodumene have met ample conversion capacity in China. That is what has brought the price down.”
Prices performed as CRU Group expected in 2019 — the firm had been forecasting a price crash in 2019 since as early as late 2017, Heppel said.
Lithium outlook 2020: Market to rebalance ahead of exponential growth
Looking ahead, most experts agree that lithium prices are close to the bottom.
“I think we are at the bottom, or certainly close,” Berry said. “The question you want to ask yourself is not so much if we are at the bottom, but how long do we stay here?”
For the expert, prices will remain at this level until the excess spodumene that is flooding the market right now gets mopped up — he estimates that will take at least a year.
Lithium expert Lowry said prices at these levels are unsustainable.
“Whether we are at the absolute bottom or whether that comes in Q1, what I believe is that once we get to a bottom, it will stay there on the low end of the pricing until the excess inventory of spodumene and low-quality material are worked through,” he said.
He believes prices will start to rise in the next nine to 15 months, with a potential spike in 2021.
Similarly, Benchmark Mineral Intelligence Head of Price Assessment Andrew Miller said he is not expecting any major upticks or falls in lithium prices from where we are at the moment. “There will be a stabilization of prices going into the new year, (then) coming to the second half of 2020 you are going to see some improvements on pricing.”