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Those expectations helped fuel the rally in lithium prices. Surging EV sales and tight lithium supply pushed Fastmarkets’ benchmark lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea assessment above $80 per kg on a cif China, Japan and Korea (CJK) basis in late 2022.
Yet the market that emerged proved markedly different from the one that many participants had anticipated.
By 2025, expanding supply and softer-than-expected consumption had pushed the market into surplus, driving battery-grade lithium hydroxide prices down to around $8 per kg cif CJK, their lowest levels in years.
Lithium iron phosphate (LFP) batteries, which are more cost-competitive and tend to use lithium carbonate instead, have captured a larger share of the EV market. Furthermore, EV adoption outside China has expanded more slowly than forecast and a wave of new refining capacity has entered production.
The result is a lithium hydroxide market that has shifted from shortage to surplus. Excess material has increasingly flowed into China, which has re-emerged as the industry’s primary balancing market and the destination for much of the world’s surplus supply.
Those changing fundamentals are now reshaping not only global trade flows but also the way lithium hydroxide is priced and traded.
The surplus that emerged in the lithium hydroxide market was not the result of collapsing battery demand. Global EV sales continue to grow, but demand developed differently than many market participants anticipated when investment decisions were made earlier in the decade. Slower growth in Western EV markets and a changing battery chemistry mix have both reduced expected consumption of lithium hydroxide.
Policy changes and weaker EV demand in Western markets have contributed to reduced battery demand and surplus hydroxide supply.
The expiration of US Inflation Reduction Act tax credits on September 30, 2025, reduced EV uptake in the US and weakened demand for South Korean battery manufacturers. Major battery producers reported weaker financial performance in 2025, with operating losses and declining revenues linked to softer demand and inventory adjustments.
Automotive demand has also been affected by project cancellations. Ford canceled a $6.5 billion EV battery agreement with LG Energy Solution in December 2025, citing policy uncertainty and weaker demand, while it also canceled three planned EVs and ended production of the F-150 Lightning.
As a result, battery producers in Korea have reduced utilization rates and have increasingly destocked material into the market. This has added further supply to the spot market.
But slower EV growth outside China tells only part of the story. Equally important has been the evolution of battery chemistry demand, which has developed differently from many forecasts made during the lithium boom.
The growing market share of lithium iron phosphate (LFP) batteries, especially as a result of the rapidly expanding battery energy storage system (ESS) market, has further constrained demand for lithium hydroxide.
The rapid development of AI computing, which requires greater power density for data centers, has become one of the core drivers boosting ESS usage.
LFP batteries dominate ESS because their superior safety, longer cycle life and lower cost outweigh nickel cobalt manganese (NCM) batteries’ higher energy density, which is less critical for stationary storage.
Fastmarkets research shows that LFP batteries account for around 94.5% of ESS deployments in 2025 and are forecast to account for 95.1% of deployments in 2026, further limiting demand for lithium hydroxide.
According to Fastmarkets’ research, lithium demand from the ESS sector totals 339,080 tonnes of lithium carbonate equivalent (LCE) in 2025, while the number is forecast to rise by nearly 30% to 440,046 tonnes of LCE in 2026.
As EV market growth has slowed in recent years, automakers such as Ford and Tesla are also expanding their product portfolios into the ESS market.
Together, slower-than-expected growth in Western EV markets and the rapid expansion of LFP batteries have altered the demand outlook for lithium hydroxide. While battery demand continues to grow globally, a smaller share of that growth is translating directly into hydroxide consumption than many producers anticipated when refining investments were approved.
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While demand evolved differently than anticipated, investment decisions made during the lithium boom continued to move forward. As a result, new refining capacity entered production just as hydroxide demand growth was beginning to moderate.
According to Fastmarkets’ research, lithium hydroxide output outside China rose sharply from 23,000 tonnes in 2021 to 105,600 tonnes in 2025, reflecting attempts to meet anticipated growth in global demand. However, by the time this capacity was commissioned, demand growth for lithium hydroxide had begun to slow, leaving much of the new supply underutilized.
Operational and technical difficulties have further hindered the development of a competitive ex-China conversion base. In addition, the building out of lithium refining capacity outside China has also proven to be financially challenging for market participants.
These challenges have translated into project suspensions and asset write-downs.
US-headquartered Albemarle completed the total shutdown of its Kemerton lithium hydroxide processing plant in Western Australia in February 2026 to improve financial flexibility.
Australian lithium producer IGO fully impaired its stake in its joint venture with Tianqi Lithium Energy Australia (TLEA), the Kwinana lithium hydroxide refinery in Western Australia, in July 2025, citing low confidence in the possibility that the asset’s performance can improve.
With downstream procurement remaining cautious, much of the ex-China supply chain has struggled to achieve stable commercial output.
The result has been growing volumes of lithium hydroxide entering a market that no longer requires as much material as originally forecast, creating a surplus that increasingly needs to find an outlet.
The global lithium hydroxide spot market has undergone a significant structural shift since late 2025, driven by a combination of weak demand and expanding supply outside China.
Historically, China functioned as a net exporter of lithium hydroxide, supported by limited overseas refining capacity and relatively stronger hydroxide demand outside China.
But that dynamic has begun to reverse.
Sluggish EV demand growth outside China, inventory destocking and increasing ex-China refining output have created a surplus in the seaborne market. Much of that material is now being redirected to China, which remains the only market large enough and flexible enough to absorb significant excess supply.
Newly commissioned refining capacity outside China has added further spot volumes, particularly during ramp-up phases when output may not consistently meet battery-grade specifications. At the same time, consumers have increasingly sold both fresh and aged inventories into the market amid weaker battery orders.
China has become the primary destination for excess material, given its market size and processing flexibility.
Imported material is absorbed through multiple channels. Higher-quality material may be used directly in cathode production, while other cargoes are converted into battery-grade lithium carbonate or refined into higher-quality battery-grade lithium hydroxide.
This shift is reflected in trade flows. China’s lithium hydroxide imports surged sharply, exceeding 23,000 tonnes in January-April 2026, compared with just over 5,600 tonnes in the same period a year earlier.
At the same time, China’s export trend has reversed amid slowing global lithium hydroxide demand, with outbound shipments declining significantly compared with previous years.
China’s total exports reached 13,171 tonnes in January-April 2026, down from 16,026 tonnes a year earlier and significantly below 41,876 tonnes in the same period of 2024, according to customs data.
These developments have reshaped spot market dynamics, with increased spot activity on a CIF China basis and decreased CIF Japan and Korea activity.
The consequences of the surplus extend beyond trade flows. They are increasingly affecting how market participants value and trade lithium hydroxide.
As larger volumes of surplus material have entered the market, participants have reported growing spot price differences between widely qualified battery-grade hydroxide and material that is not widely qualified, which may be intended for conversion, non-battery applications or further processing.
The result has been a more differentiated market in which factors such as qualification status, shelf life, physical characteristics and end-use destination have become increasingly important drivers of value.
These changes have also begun to influence price discovery, particularly in the seaborne market, where a wider range of material qualities is now available to buyers.
Fastmarkets has observed increased spot liquidity of material not widely qualified in the destination country from newly online refining capacities, as well as older material as consumers were destocking unused inventories amid the challenging EV market outside China over the past year.
As a result, Fastmarkets has seen widening price ranges, particularly in the battery-grade lithium hydroxide CIF China, Japan & Korea market, with participants increasingly reporting greater price differentiation between widely qualified material and unqualified or older material, as well as material destined for conversion or non-battery-grade end uses.
Market participants have also reported differentiated value for battery-grade lithium salts due to the product’s physical characteristics and its shelf life, particularly for lithium hydroxide. Factors such as volume and payment terms are also having a growing effect on value, with increasing trader participation in the spot market in recent years.
These wider price assessment ranges have also been attributed in part to changing fundamentals for NCM-chemistry battery material ex-Asia, which has led to a surplus of lithium hydroxide that has largely been sold on a CIF China basis at lower prices.
Following extensive market feedback from more than 50 companies across the supply chain, Fastmarkets is tightening the specification of its benchmark lithium hydroxide price assessments. The changes are intended to ensure the assessments continue to reflect prevailing merchantable battery-grade material that is widely qualified for use in EV and ESS battery applications in the destination market, rather than unqualified or older material.
As supply-demand fundamentals for lithium salts shift, as new products and trade flows emerge, and as the market matures, Fastmarkets’ methodologies must adapt to reflect those realities.
For example, in response to the sharp increase in volatility, Fastmarkets increased its spot battery-grade lithium salts price assessments to a daily frequency in December 2021.
In the same year, Fastmarkets partnered with commodity exchanges CME and LME to support the launch of lithium hydroxide derivative contracts amid market participant demand for hedging and risk management tools. This was followed by similar launches with SGX in 2022 and ICE in 2025.
In the same vein, through this change, Fastmarkets will continue to reflect the most representative specification of the physical spot market for battery-grade lithium salts and will continue to reflect the prevailing battery-grade market.
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