A fast and furious year for lithium | LME Week 2021
Fastmarkets analyst William Adams and reporter Sofia Okun size up the lithium market ahead of LME Week, which begins Monday October 11
By William Adams and Sofia Okun
This year has been fast and furious for the lithium market, with prices rising 135-265%, depending on location and type of lithium salt. Spodumene prices are up by 470% since the start of the year. This follows the depressed state that the market was in last year.
The origin of the slump in prices between 2019 and 2020 was the start-up of a lot of new supply in a short space of time in 2018. That ramped up in 2019 and sent the market into a supply surplus. Prices fell to unsustainable lows in 2020, but as they say, “the answer to low prices is low prices.” The low prices in 2020 led to another production cut and the closure of Altura. And that, combined with a strong rebound in Chinese demand for electric vehicles (EVs) and rapid growth in European EV demand, turned the market around.
The market destocked into the price weakness in 2020, and when prices started to rebound the market started to restock. That, combined with strong actual demand growth, fuelled the robust rally that is still underway.
But a sizeable amount of new production capacity is on the way, some of the idle capacity is in the process of being restarted, and other idle production capacity is expected to restart. Given that ramp-ups can be tricky - especially at brine operations - and that all the new material will need to be qualified by those buying it, the new supply is unlikely to hit the market at the same time. It will feed through, however, and that will help alleviate the current supply tightness.
Price volatility will have been a wake-up call for many lithium consumers who were not that active when prices last spiked higher in 2017. This may well mean more of them will look at managing their price risk and take an interest in the exchanges offering lithium futures that are cash-settled against the Fastmarkets’ price assessment.
Overall, with the tightness expected to remain in place for the rest of this year and into 2022, there is still risk on the upside for prices. But while new supply is ramped up, prices are likely to start to pull back at some stage in the second half before stabilizing into more of a sideways trading range.
What buyers are saying
- The lithium market remains tight amid strong consumer interest in EVs in key markets such as Asia and Europe.
- Demand for lithium raw materials remains high; expectations of further price increases are driving buyers to secure units for the rest of year and for early 2022.
- Buyers report limited space for lithium prices in China to move lower due to tightness in the market. However, space for prices to rise is also limited by potential lasting power cuts at some cathode materials plants.
- The lithium carbonate market rose in the first three quarters of 2021, reversing a two-year period of declining prices. Fastmarkets’ assessment of the lithium carbonate cif Asia price is now back to levels last reported in 2018.
What sellers are saying
- China’s fresh round of power restrictions affected supply from multiple battery-precursor and cathode-materials production hubs, with operations at certain plants reduced by 30-70%.
- Some market participants were still optimistic and expected operations to resume at affected plants after the National Day holiday break the first week of October; others have taken a more watchful stance.
- Liquidity for lithium carbonate largely dried up ahead of the holiday week, but some supplier sources said demand will resume after the holiday in response to restocking drives.
- Spot lithium carbonate prices are likely to remain supported in the short term because operations in China’s Qinghai province, a key production hub of brine-fed lithium carbonate, should gradually slow during the winter months when low temperatures become a major hurdle for brine processing.
London metals week remains a key milestone in the commodities calendar. Find out why it’s still a big draw for the world’s commodity trading community, and discover our special LME Week 2021 coverage on key commodities such as nickel, lead, tin and lithium.