The outlook for lithium has become a topic of interest, given the mineral’s role in batteries, positioning it well to capitalize on trends in energy transformation and electric vehicles. However, inventories are weighing down the market, according to a recent analysis by Macquarie.
The commentary, signed by analyst Alice Fox, warns that the anticipated recovery in mineral prices this year has lost momentum sooner than expected. This is due to “insufficient supply being released at lower prices and the accumulation of raw material reserves dragging down the market.”
In March and April, there was a “strong seasonal recovery” in Chinese productin of carbonate and hydroxide, although it is estimated to have moderated in May, according to the analyst. This has led to an increase in lithium carbonate inventories, which now stand at 92,000 tons, their highest level since these data were first collected.
Additionally, Macquarie highlights that battery inventories in China slightly increased in March, despite original equipment manufacturers in the country seasonally increasing electric vehicle sales since the Lunar New Year.
Global sales of battery electric vehicles, meanwhile, increased by 10.6% between January and April, representing a “considerable year-on-year increase,” but also a “notable slowdown” compared to the 26.9% growth rate in 2023. Conversely, sales of plug-in hybrid vehicles increased by 49.7% between January and April, compared to 44.5% in 2023.
Looking ahead, Fox notes that “the pace of expansion in electric vehicle sales in China is expected to slow to 24.6% this year, from 30.2% last year. The Chinese market is maturing, with a penetration rate in cities of 67.9% in 2023, compared to the national average of 35.7%.” While total Chinese exports of such vehicles increased by 19.6% in the first quarter, exports to the European Union fell by 19.6% year-on-year in January and February.
“At this point, it is difficult to determine whether the reduction in exports to date is due to lower demand or a premature response to potential tariffs, which might need to be 40% or 50% for the market to become unattractive to Chinese exporters,” writes the analyst.
Regarding spodumene prices—a lithium aluminum silicate—they reached a high of $1,240 per ton in early May, 46% above their January lows, but have since lost momentum.
“Mainland China’s hydroxide and carbonate prices recovered marginally from their lows following the Lunar New Year holiday, driven by unconfirmed reports of an environmental crackdown on domestic producers, inventory replenishment, and concern over the cancellation of warrants in the GFE market for inspection. However, prices did not make significant gains and have recently weakened slightly due to increased inventories,” comments Fox.
For Funds Society
For Alicia Jiménez