Lithium Market Year-to-Date Review (Updated June 2023)

Following a 2021 that saw lithium rally to all-time highs, prices began to stabilize in 2022.

Despite pulling back since then, the commodity remains at historically high levels and the future looks bright — demand for the battery metal is expected to soar in the coming decades, with questions about supply increasing every day.

2023 has now almost reached its mid point and the lithium market has already seen a slew of major announcements. Read on for an overview of the main news that has impacted the lithium sector so far this year.

​Lithium prices in focus

After rallying since the end of 2020, lithium prices began to pull back at the end of 2022, when they took a downward turn. Chinese lithium prices have been declining from their all-time highs since November, although in April prices rose for the first time in five months.

In a recent webinar, William Adams, head of battery and base metals research with Fastmarkets, said that the firm had expected prices to peak in the fourth quarter of 2022, with prices reaching their peak in November and moving down quite heavily.

“It was a result of a combination of the very high prices creating huge margins, and that dragged in extra supply into the market, but we also saw some sort of demand hit as well,” he said.

Lithium demand is expected to increase by 28 percent year on year in 2023 and 24 percent year on year in 2024, with the electric vehicle (EV) segment set to represent 73 percent of all demand, according to Fastmarkets' forecasts.

“We expect the market to remain in deficit this year and next,” Jordan Roberts, battery raw materials analyst at Fastmarkets, said. “We have to consider the fact that supply always disappoints to the downside, and we can probably expect delays to new units suspected to come online and ramp up during the remainder of the year.”

Even though they are moving to more sustainable levels, Fastmarkets is expecting prices to remain volatile.

​Lithium producers post quarterly results

Some lithium miners have been hit by easing prices during the past few months, but producers also remain positive about the need for lithium this year.

Charlotte-based Albemarle (NYSE:ALB), which saw its lithium sales increase in 2022 on the back of high lithium prices, said it expects its energy storage segment sales volumes to be up 30 to 40 percent in 2023 compared to 2022. However, the company, which has lithium brine assets in the US and the Salar de Atacama in Chile, has revised its target due to the price performance of lithium.

"We see strong sales volume growth for the rest of the year but have modified our guidance to reflect softening lithium market pricing,” CEO Kent Masters said in a statement.

Chile’s SQM (NYSE:SQM) is expecting demand to increase this year, forecasting demand growth to reach 20 percent. But the lithium miner, which also operates its primary lithium business in the Salar de Atacama, saw its sales drop in the first quarter of 2023 compared to the same period last year.

The company said advanced purchases in the previous quarter, the change in subsidies in China and the high level of stock across the battery supply chain, were the reasons behind weaker demand, predominantly in China, in the beginning of the year.

“Based on the recent increase in customer activity, we believe that the destocking period has concluded and anticipate our sales volumes to recover in the upcoming quarters,” CEO Ricardo Ramos said in a statement.

Meanwhile, after seeing its revenue almost double last year thanks to higher prices, Argentina-focused Livent (NYSE:LTHM) saw further increases with its Q1 2023 revenue. The company, which operates its lithium business in Argentina's Salar del Hombre Muerto, also said it remains on track to deliver all previously announced capacity expansions.

Australian producers also posted quarterly results as lithium spodumene feedstock prices soften but hold on to historical high levels.

Western Australia’s Pilbara Minerals (ASX:PLS) is expecting prices to continue to ease in the short term. Lithium pricing could potentially strengthen in the second half of this year “as restocking of inventory levels in China occurs across the supply chain,” the company said in a statement.

In its financial year Q3 results, Mineral Resources (ASX:MIN) announced it had lowered its FY2023 lithium battery chemicals sales guidance for the Wodgina project, a joint venture with Albemarle, due to market conditions. The company reported that it expects spodumene concentrate production and lithium battery chemical sales from the Mt Marion project, which it owns jointly with Ganfeng, to come in at the lower ends of guidance because of a delay with the site's plant expansion and mine sequencing. Mineral Resources raised the FY2023 spodumene FOB cost guidance for Mt Marion for this reason as well.

For ASX-listed Allkem (ASX:AKE), despite recent volatility, the fundamentals underpinning lithium demand remain very strong. In the last quarter, the company saw production increase at its Olaroz facility in Argentina and at Mt Cattlin in Australia.

Lithium M&A activity picks up pace

Consolidation in the lithium space has taken center stage since the start of 2023. Earlier in the year, top lithium miner Albemarle offered US$3.7 billion to buy Australia’s Liontown Resources (ASX:LTR,OTC Pink:LINRF) but was rejected. The yet-to-be in production ASX lithium mining company, which is developing the Kathleen Valley project in Western Australia, hopes to see first production by mid-2024. The asset is expected to supply about 500,000 metric tons of spodumene concentrate a year to global markets.

Another Australian miner, Essential Metals (ASX:ESS,OTC Pink:PIONF) also declined a bid, with this one coming from a joint venture formed by leading producers Tianqi Lithium (OTC Pink:TQLCF,SZSE:002466) and IGO (ASX:IGO,OTC Pink:IPGDF).

But the biggest M&A news came in May, when lithium producers Livent and Allkem inked a US$10.6 billion mega merger deal. Lithium experts believe more consolidation is ahead for the sector as demand for lithium continues to increase.

RK Equity’s Rodney Hooper told the Investing News Network that any large resource project in a Tier 1 jurisdiction will likely be bought out or merged. Despite the deals signed with junior miners in recent months, for the expert, original equipment manufacturers need to get more involved. “Offtake agreements are an insufficient hedge; they also need to lock in lower long-term lithium prices," Hooper said.

Lithium expert Joe Lowry of Global Lithium also expects more consolidation in the lithium market.

“I think you might see some of the better small exploration plays in Western Australia just get absorbed sooner than they would have otherwise, just because it’s a grab for the rock now,” he said. “Why wait until they have a market cap of $500 million if you can pick them off when they’ve got a market cap of $50 million?”

​EV makers continue to lock down lithium supply

For car manufacturers from Tesla (NASDAQ:TSLA) to General Motors (NYSE:GM), the past few years have seen the race to secure a steady supply of lithium increase — and this increased even more in the past year, as prices climbed and geopolitical tensions exposed the vulnerabilities of the global lithium supply chain.

Following deals earlier this year, such as General Motors' investment in Lithium Americas (NYSE:LAC) and the amended agreement between Piedmont Lithium (ASX:PLL) and Tesla, US carmaker Ford (NYSE:F) stepped up its lithium game signing five supply agreements in May, two of which are with established producing companies Albemarle and SQM.

“This is a big moment for Ford. Deals with developers are important, but ones with active producers are irreplaceable,” Simon Moores, CEO of Benchmark Mineral Intelligence, said. “The lithium land grab is underway.”

The Michigan-based company's remaining three deals were all with companies developing sources yet to come on stream: Compass Minerals (NYSE:CMP), privately owned EnergySource Minerals and Quebec-focused Nemaska Lithium (TSX:NMX). Ford became the first customer of Nemaska with their deal.

Chile moves to gain more control of lithium industry

In April, Chile’s President Gabriel Boric revealed plans to nationalize the country’s lithium industry, aiming to boost its economy and protect the environment. Future lithium contracts in Chile will now only be issued as public-private partnerships with state control, Boric said.

Top lithium producers Albemarle and SQM have operations in the country, with contracts that expire in 2043 and 2030, respectively. SQM has already started conversations with state-owned Codelco, tasked to handle the talks, while Albemarle is expected to follow suit soon.

Chile is also planning to request all new lithium developments to use direct lithium extraction, a technique yet to be commercialized at scale, to speed up production and reduce water consumption.

The South American country's move follows Mexico's nationalization of its lithium industry last year, although Mexico is yet to exploit lithium at a commercial scale while Chile is the world's number two producing country just after Australia.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.