The lithium carbonate spot price just dropped to its lowest level since August 2021 at US$15,182 per tonne (p/t) amid low Chinese demand and increased global supply.
This represents an almost 80% fall in the carbonate price in 2023 alone.
Unsurprisingly, this has dragged down the value of ASX 200 lithium shares over this period:
- Core Lithium Ltd (ASX: CXO) shares are down 76%
- IGO Ltd (ASX: IGO) shares are down 42%
- Allkem Ltd (ASX: AKE) shares are down 23%
- Mineral Resources Ltd (ASX: MIN) shares are down 22%
- Pilbara Minerals Ltd (ASX: PLS) shares are down 7.5%
What's happening with lithium prices?
We've got a significant supply and demand situation right now, and it seems to be getting worse.
Top broker Goldman Sachs has put out a note lowering its 12-month forecast for lithium prices again.
The broker was tipping US$15,000 p/t for lithium carbonate but is now forecasting US$11,000 p/t.
It was also predicting US$16,500 p/t for lithium hydroxide and has reduced that to US$12,000 p/t.
As my Fool colleague James reports, Goldman reckons lithium prices won't bottom til 2025.
Fresh analysis from Trading Economics points to pessimism about electric vehicle (EV) sales in China — the world's biggest producer of EVs — as the key catalyst for continually falling lithium prices.
Trading Economics analysts explain:
EV sales pessimism in China limited lithium demand for battery manufacturers in their typical restocking season. Instead, firms took advantage of high inventories following the supply glut caused by extensive subsidies from the Chinese government throughout 2021 and 2022.
The developments drove key market players to forecast the next lithium deficit to return only in 2028 …
Elsewhere, the EV sales in the US have missed expectations as higher credit costs hampered consumers' willingness to make large purchases. Meanwhile, output is set to remain robust.
Reuters reports that CITIC Futures forecasts domestic EV sales in China to grow by 25% to 9.44 million units next year, slowing from annual growth of 31% and 89% in 2023 and 2022, respectively.
On top of that, a slower growth rate is also projected for the energy storage sector, which is the second-biggest consumer of lithium, because of softening demand, CITIC says.
Should you care?
The dramatic fall in lithium prices this year, coupled with bearish forecasts for 2024, makes for depressing reading. But the question is, should short-term lithium price issues influence our investment decisions?
The falling commodities values don't seem to be influencing the investment decisions of the biggest brains in Australian mining, not to mention some of the biggest lithium companies in the world.
In 2023, amid crashing lithium prices, they've all been vying for a bigger share of the Australian lithium pie.
Here are some examples.
MinRes boss Chris Ellison recently took a 17.44% stake in Delta Lithium Ltd (ASX: DLI) and is now the board's non-executive chair. Hancock Prospecting boss Gina Rinehart is also a major shareholder.
Ellison also bought nearly a fifth of Wildcat Resources Ltd (ASX: WC8) last month.
Rinehart raided Liontown Resources Limited (ASX: LTR) and built a 19.9% stake in October while US takeover suitor Albemarle Corporation (NYSE: ALB) did its due diligence. That deal then fell over.
Rinehart and Ellison have both been buying Azure Minerals Ltd (ASX: AZS) shares after the junior miner accepted a $3.52 per share takeover from Chilean lithium giant Sociedad Quimica y Minr de Chile SA (NYSE: SQM). Ellison now reckons the SQM takeover is "dead in the water".
Meantime, the proposed merger of Allkem and Livent Corp (NYSE: LTHM) is moving full-steam ahead.
Clearly, these giants of the lithium industry are thinking long-term.
It begs the question as to whether we ordinary ASX investors should be doing the same and ignoring the current white noise on lithium prices.
In fact, maybe we should welcome it.
It's driving ASX lithium share prices down, and perhaps that will give us a phenomenal one-off opportunity to buy the dip at some stage in a mining sector with a very bright future.
The decarbonisation investment theme has decades to run, with lithium batteries set to play a monstrous role in the green energy transition.
