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Lithium plummets amidst sluggish EV demand and growing supply

Investors in the lithium market have witnessed a sharp decline in prices, with the value of lithium plummeting by approximately 80 per cent throughout the current calendar year. This drop can be attributed to a combination of factors, including an influx of supply, inventory reductions at cathode companies, and subdued demand for electric vehicles (EVs). However, experts suggest that there are reasons for optimism, as demand for lithium is anticipated to significantly outpace supply as early as 2025.

Steven Glass, a portfolio manager at Pella Funds Management, sheds light on the primary markets for lithium, which encompass EV batteries, other battery applications, ceramics, and glass. Among these, EV batteries stand out as the fastest-growing segment and the key driver of the lithium market.

Within the realm of EVs, there are two major categories: battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV). BEVs operate solely on lithium batteries, eliminating the need for petrol, while PHEVs utilize both petrol and lithium batteries rechargeable through an electric socket.

Notably, China has emerged as the largest consumer of EVs, followed by Europe and the United States.

Glass emphasizes that while most people anticipate substantial growth in EV sales, they may not fully comprehend the extent to which the average amount of lithium per EV is expected to increase. This crucial factor is poised to drive lithium demand beyond current expectations.

Lithium batteries primarily come in two forms: NMC, composed of nickel, manganese, and cobalt, and LFP, which utilizes iron and phosphate. NMC batteries offer superior performance and dominate the EV battery market outside of China. On the other hand, LFP batteries, although considerably cheaper, have been closing the performance gap and are gaining traction in various countries. Glass calculates that LFP batteries require approximately 15 per cent more lithium than their NMC counterparts.

Steven Glass’s analysis highlights a significant trend shift from smaller Chinese mini-EVs to larger BEVs, particularly in the United States. His projections suggest that lithium demand will experience a remarkable annual growth rate of 24 per cent, reaching 1540 kilo tonnes by 2025. For context, the Australian government’s latest production forecast for 2025 is set at 1511kt.

However, it’s important to acknowledge the potential risks to this forecast, including a slower adoption rate of larger BEVs in the United States.

Australia boasts some of the world’s largest lithium deposits, with several leading lithium mining companies listed on the ASX. Investors are taking cues from prominent figures like Gina Rinehart, who has recently invested in lithium stocks such as Liontown Resources (ASX:LTR) and Azure Minerals (ASX:AZS).

Nathan Bell, the head of research at Intelligent Investor, advises investors to focus on the most robust lithium miners and producers capable of weathering low prices for extended periods until demand surpasses short-term oversupply. Among the attractive options, Pilbara Minerals (ASX:PLS) stands out due to its substantial cash reserves, which allow it to continue investing during periods of low lithium prices. Additionally, Mineral Resources (ASX:MIN), a company with diverse interests beyond lithium, has clear plans to expand its production across all business segments, potentially making the lithium business worth 50-100 per cent of its current share price, according to Bell.

As the lithium market navigates its current challenges, it remains poised for a resurgence driven by the growing demand for electric vehicles and evolving battery technologies. Investors are closely monitoring these developments in anticipation of a brighter future for the lithium sector.