Why has the lithium price quietly risen 20% in 2024?

After an 80% plummet in the lithium carbonate price last year, is there hope on the horizon?

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The lithium price for carbonate is currently US$14,859 per tonne, up 10% in 2024.

In the year to date, the highest price it has reached is US$15,965 per tonne.

It got there mid-last month, and that was 20% above its starting value on 1 January.

This is nice to see after the lithium price plummet of 2023 when carbonate's value fell by a whopping 80%.

But does this price bump signal a fundamental change in the outlook for lithium prices?

Unfortunately not.

The lithium carbonate price remains at its lowest level since August 2021 due to supply and demand dynamics that are going to take years to work their way through.

Top broker Goldman Sachs reckons lithium prices won't bottom til 2025.

This has led to some Australian lithium miners scaling back production. For example, IGO Ltd (ASX: IGO), which co-owns the Greenbushes mine, is stockpiling lithium to sell when commodity prices rebound.

On Thursday, ASX lithium shares were a mixed bag.

Here's a snapshot:

  • Core Lithium Ltd (ASX: CXO) shares closed steady at 15.5 cents, flat
  • Pilbara Minerals Ltd (ASX: PLS) shares closed up 0.52% to $3.85
  • IGO Ltd (ASX: IGO) shares closed up 0.71% to $7.12
  • Arcadium Lithium CDI Def (ASX: LTM) shares closed down 0.89% to $6.72

What's going on with lithium prices?

According to Trading Economics, the Chinese electric vehicle (EV) market remains oversupplied.

Government subsidies in China in 2022 encouraged greater production and consumer purchases of EVs.

This drove up demand for lithium and caused the commodity's price to skyrocket. Meantime, a wave of new investment in lithium production led to higher global supply, which weakened commodity prices.

Slower adoption of EVs in the United States and European Union amid a cost of living crisis means car manufacturers and retailers are carrying higher inventories and are cutting prices to sell stock.

According to Trading Economics:

Sales of EVs rose by 18.2% in the first two months of the year in China, slowing from 20.8% in 2023 and the triple-digit growth rates commonly seen in late 2022.

Lower demand from consumers amid the end of subsidies from Chinese authorities drove major car manufacturers to cut EV prices further, with giant BYD decreasing prices by an average of 17%.

A reduction in Chinese demand for lithium is a big problem for Australia given it's our biggest customer. In FY23, 98% of our spodumene was exported to China.

Latest Federal Government forecasts

Official forecasts for lithium prices can be found in the Federal Department of Industry's March quarter resources and energy quarterly report released last week.

The report explains that last year's tumble in lithium commodity prices led some miners, especially the high-cost producers, to reduce their production.

This is likely to support a "modest recovery in the lithium prices over 2024 and 2025", according to the report.

In February 2024, the lithium spodumene price fell to an average of US$1,000 a tonne, while the lithium hydroxide price fell to an average of US$13,350 a tonne.

The lithium spodumene price is forecast to rise (in real terms) to about US$1,360 a tonne by 2026, before falling to about US$1,090 a tonne by 2029.

The department predicts a fall because, "From 2026, alternate battery chemistries could place some price pressure on lithium-ion EV batteries …".

The lithium hydroxide price is forecast to rise (in real terms) to about US$18,330 a tonne by 2026, before falling to about US$13,890 a tonne by 2029.

The department forecasts a fall because, "Rising LFP battery adoption is projected to continue to put lithium hydroxide prices under pressure."

The department reiterated that lithium price forecasts have a high degree of uncertainty.

This is because they hinge on how many producers enter the global market, and the uptake rate of EVs by consumers.

Lithium export earnings to fall…

Since the December 2023 resources and energy quarterly, the department has downgraded its forecast for Australia's lithium earnings in FY25 by 38% (from $15 billion to $9.5 billion in nominal terms).

This is due to a lower price forecast for lithium spodumene, partially offset by higher production.

Motley Fool contributor Bronwyn Allen has positions in Core Lithium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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