Commodities prices have been under pressure across the board over the past few months, but one of the most notable fallers has been lithium.
Because of the underlying bull case for lithium, which centres around the electrification of the world’s vehicle fleet, lithium prices outperformed significantly in the latter part of 2022, and hit record prices inside China in November.
When set against the sluggish performance of other potential mainstays of the future economy, like copper, the price action in lithium looked stellar.
The hangover after that party is now setting in, though. Since the beginning of this year, lithium carbonate prices in China have dropped by 30% - their lowest in over a year.
The stop-start nature of the Chinese economic response to covid has been to blame in part for this yo-yoing around. But other factors have come into play too. Demand for electric vehicles fell across the Chinese New Year period as government subsidies came to an end.
In addition, CATL, China’s – and the world’s – largest maker of lithium batteries has started to offer discounted prices to market customers. Is it, then, becoming a buyers market?
Worth noting too, that the supply deficit that’s been built into the lithium market for some time is now narrowing.
Goldman Sachs (NYSE:NYSE:GS) reckons supply is likely to grow by around 33% annually, while demand is only likely to increase by 25%. That’s good for the green economy, and good for those paying for it. But the net result is that margins on lithium mining might now be lower.
Those that already have sizeable margin built into their projects, like Atlantic Lithium and Neo Lithium, won’t be too worried.
And in the near-term, the pain might not deepen much further. In a note to clients put out this week, Citi argued that lithium prices would likely stabilise at the beginning of the second quarter.
Even so, some of the smaller, more opportunistic players in lithium, will likely be running their numbers again.
And, for companies that like to move in and out of the latest fashionable commodities, the departure of lithium down the catwalk runway leaves an obvious question: what will be the next commodity du jour. In recent years we’ve had lithium, cobalt and graphite all at the top of the fashion charts.
Could it be that sodium will be next? This week, a joint venture between Volkswagen (ETR:VOWG_p) and JAC Group produced the first car powered by a sodium ion battery.