The lithium price for carbonate is currently US$13,592, following a spectacular 80% decline in 2023. It's now at its lowest level since August 2021 due to falling demand amid rising supply.
On Tuesday, ASX lithium shares are a mixed bag. Here's a snapshot:
- Core Lithium Ltd (ASX: CXO) shares are up 5.26%
- Pilbara Minerals Ltd (ASX: PLS) shares are up 1.71%
- Mineral Resources Ltd (ASX: MIN) shares are up 1.23%
- IGO Ltd (ASX: IGO) shares are up 0.23%
- Liontown Resources Ltd (ASX: LTR) shares are flat
- Arcadium Lithium CDI Def (ASX: LTM) shares are down 2.31%
When will the lithium price pain end?
Fairmont Equities managing director Michael Gable reckons we could be seeing some capitulation in the lithium price now. However, top broker Goldman Sachs reckons lithium prices won't bottom til 2025.
Official forecasts for lithium prices are contained in the Federal Government's latest resources and energy quarterly report. Unfortunately, it's not good news for the short-term outlook.
The report says lithium prices are likely to decrease in 2024 due to an ongoing global production surplus.
According to the forecasts:
During 2022 and early 2023, prices for lithium reached levels well above previous records as the market moved to a large deficit.
In 2023, prices have fallen significantly as the market has swung from deficit to surplus.
The high prices in 2021 and 2022 incentivised more investment in lithium production, resulting in growth in supply outpacing demand. Adding to this, lithium consumers destocked during the period of high prices to lower the cost of carrying inventory.
In the near-term, the demand for lithium is facing headwinds due to slower than expected growth in EV uptake in recent months, especially in the US.
Will lithium prices go back to their 2022 highs?
Not before 2025, according to the report.
The weak short-term outlook for lithium prices is now incentivising some production cuts among producers worldwide.
The report notes some higher-cost producers, such as lepidolite miners in China, have become unprofitable at today's lithium prices and have cut production.
However, most lithium producers will remain profitable at current prices and continue to produce.
In Australia, the five largest lithium mines (covering 99% of Australian spodumene production) reported their average costs of production per tonne over the 2022–23 financial year to range from A$670 to A$1,225.
On today's US currency conversion rate, those costs equate to US$450 per tonne and US$823 per tonne, respectively.
The spot price of spodumene averaged about US$3,840 per tonne in 2023. The government expects the lithium spodumene price to fall to US$2,300 in 2024 and US$2,200 in 2025.
The government says there are risks to lithium price forecasts due to "an unusually high degree of uncertainty". It notes that the lithium market has undergone "significant structural change in recent years" due to new producers entering the market and the rapid pace of electric vehicle (EV) demand growth.
Some Australian companies are also scaling back on production today.
IGO, the co-owner of Greenbushes in Western Australia, which is the world's largest hard rock lithium mine, is now stockpiling lithium to sell when the commodity prices rebound.
Core Lithium announced last week that it was suspending its mining operations to conserve cash. It will continue to process established ore stockpiles.
With all that said, we saw a large amount of M&A activity in the lithium space last year.
This indicates that many of Australia's mining giants think it's the right time to invest in lithium for the long runway ahead as the world continues to decarbonise.
Last week, we revealed the three best-performing ASX lithium shares of 2023.
