Lithium price slides on supply and demand concerns

A new type of Lithium-ion battery and the end of Chinese support for the Electric Vehicle (EV) industry could weaken global demand for Lithium. At the same time 8.5 million tons of lithium, equivalent to 10% of the current world reserve, were recently found in a deposit in Iran. The price of Lithium Carbonate, the essential raw material, halved in anticipation of lower demand and increased supply.

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The overproduction of batteries at the end of 2022 to take advantage of subsidies drove battery producers to have unsustainably high inventories and prompted the sale of goods at a steep discount with sharp capacity cuts at manufacturers in all streams of the supply chain.

Lithium Carbonate Price, Chinese Yuan Per Ton

Source: Trading Economics

Cheaper Lithium-ion battery

The world’s largest Lithium-ion battery producer, China’s Contemporary Amperex Technology (CATL), a leading Chinese battery manufacturer, recently announced that it plans to start mass production and delivery of a new type of Lithium-ion battery, ‘M3P’, which could be cheaper that traditional nickel and cobalt containing batteries, while offering 15% higher energy density than today’s ‘LPF’ Lithium-ion phosphate batteries (which have over the last several years eaten into nickel and cobalt containing battery market share).  

M3P batteries will replace the iron component of an LFP battery with a mix of zinc, aluminum and manganese. CATL have arguably moved towards this new battery chemistry and away from solid-state batteries citing it has found it challenging to come up with a technologically feasible and competitive product based on solid-state batteries (given the increased usage of lithium as a raw material).

If M3P offers a cheaper alternative than batteries which contain nickel/cobalt, and higher performance than LFP batteries at modestly higher price, they could offer an attractive market proposition. There will of course be a necessary lead-time to build manufacturing capacity,  supply chain, and to prove OEM manufacturers’ acceptance.

Competing Sodium-ion batteries

Another longer-term challenge for lithium demand could emerge from greater use of competing Sodium-ion batteries in Electrical Vehicles (EVs). Last month, Chinese automaker JAC unveiled a test version of its Sehol E10X EV car using sodium-ion cells. However, Lithium-ion batteries are pretty much the only batteries that power EV's at this stage.

EV vehicle demand still strong

China halted incentives for the EV auto sector last year, hitting battery demand. Battery producers were left with large inventories such that they cut capacity and sold product at a discount. However, lithium-ion batteries are still dominant in light EV passenger vehicles where sales are forecasts to remain strong (33% up in 2023, but slowing from 66$ in 2022 and over 100% in 2021.)

Light Passenger EV Sales Forecast, 2023

Source: StoneX.

Analysis by Natalie Scott-Gray, Senior Base Metals Analyst.

Read more of Natalie’s thoughts at StoneX Market Intelligence at https://my.stonex.com/