Why Are Lithium Prices Falling?

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A few weeks ago, I wrote about how if the United States wants to electrify its passenger vehicle fleet by 2050, the country will need to mine three times more lithium each year than is currently being mined globally. And that’s just for passenger vehicles. There’s long haul trucking to consider. Planes, trains, grid scale battery storage projects, bikes, scooters, and a million other applications also require the alkali metal.

With all that demand ramping up, you’d expect the price of lithium to be at an all time high. But then, you’d be wrong. In the last five months, the price of lithium carbonate has fallen 52%, from to $4,533 per ton in late November to to just $2,219 per ton today.

The perplexing decline was the subject of an article in the New York Times from earlier this week. You can and should go read it yourself, but the reporting suggests that the downward price trend might be attributable to supply coming online faster than analysts predicted due to readily available financing and government incentives. Combine that explosive supply increase with a slightly cooler-than-anticipated demand for EVs, and suddenly you’ve got a real mismatch.

The big question is, as always, what’s going to happen next?

I’m no psychic. That said, I do think it’s wise to put this price drop in perspective: The journey to battery electric vehicles is on track to take place over the next 27 years; drawing any sort of conclusion about how lithium prices are going to settle based on a five month period at the very beginning of the transition seems extremely premature.

While the free market is often pretty good at sorting out supply/demand mismatches in commodities, the world is facing a looming level of lithium demand that is almost hard to comprehend. As the New York Times article mentions, Biden Administration officials have said that the United States will need to mine 42 times more of the metal by 2050 than we are today to meet demand. Mistaking today’s short-term supply surplus as an indicator of a solved problem, seems myopic to put it lightly.

More likely then, I think, is that we’ll continue to see lags in both supply and demand over the coming years that send lithium prices up or down accordingly. This isn’t exactly my boldest prediction since it’s, you know, how markets work. But one thing is for sure: With metal prices coming back down to Earth, now is a good time to be building and buying electric cars.