By Rhodri Morgan
Though outlooks and sentiment are never consistent in the commodity market, investors and analysts can, and do, revert to meme mimicry.
Even those seasoned in the ‘boom or bust’ market cycle seem to die on the rolling hills of ‘to the moon’ growth or the purgatorial darkness of a bear slump with little in-between.
This can particularly show its face in young, emerging markets necessary for the future; the overpowering need to grow for both producers and sellers can short-circuit the under-developed framework.
Lithium is the latest commodity to invoke such fusses being so closely tied to a global push towards electric vehicles as the primary ingredient in the lithium-ion battery that powers the vehicle.
An international drive towards cleaner roads it may be, but like so many other raw materials, China is lithium’s north star.
The years immediately following the worst of the coronavirus pandemic saw China really begin to step up not only its roadmap for developing electric vehicles but also the infrastructure to produce them affordably at a mass scale.
Battery-electric vehicle sales leapt 84 per cent to around 5.4m units in 2022 while plug-in hybrid vehicle sales grew 152 per cent to 1.5m units.
With other major economies like the U.S. and across Europe following China’s example and Elon Musk declaring it the “new oil,” lithium carbonate prices rocketed by over 1,000 per cent in two years to a record $81,375 per tonne by November 2022.
Post-euphoria comedowns can be dramatic so what came next both is and isn’t a crash.
Yes, prices have tumbled to around $13,200 (£10.400) per tonne; a fall of more than 80 per cent in the last year to their lowest levels since 2020.
But such was the glut of lithium hitting the market through 2022 to meet both current and expected 2023 demand, that chronic over-supply was sure to and did occur.
In large part, this was down to when 2023 fell (in relative terms) flatter than 2022 for China’s EV market – China’s battery electric vehicles grew around 25 per cent and plug-in hybrid electric vehicles grew by 85 per cent.
The fact remains that annual lithium demand growth is still sitting higher than the entire global market was just a few years ago.
The current low levels of pricing that investors and traders are tolling the bells for would have been considered unsustainably high less than a decade ago.
Global electrification is still logistically nascent. In principle and in pockets, it is advancing at speed and there is reason to positively expect growth and development to follow across sectors very quickly.
But it is not an overnight process and there will be regressions, such as lithium is proving now. This should be considered a new reset point for the market upon which to enjoy another likely period of boom growth.
And when Lithium almost certainly busts again the process starts once more, though once the market matures to a certain point, reset points will likely be less frequent and muted if not downward in gains.
William Adams, Fastmarkets’ commodity guru recently noted a simple but crucial point: Just as prices overshot to the upside in 2022, they will likely overshoot downwards while demand is curbed and manufacturers work through the existing oversupply.
Once the normal market dynamics then resume, prices are likely to rise – how quickly can’t be said for certain but if lithium feeds EVs and vice versa the recipe is there for exponential healthy growth.
The Western world’s focus needs to be on prising a competitive slice of the market share away from China before that happens.
