Free-falling lithium price puts mining in question

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In a short time, the price of lithium fell by more than 80% in world markets, following a lower demand for electric cars. Mining is being called into question, as it may no longer pay off.

The energy transition has placed lithium at the top of energy policy priorities and on the agenda of politicians themselves – as well as on the agenda of climate action groups. As it is a raw material that is theoretically in high demand, its price must be increasing – but the truth is that this is not what is happening.

On the contrary: the price of lithium carbonate, used to produce cathodes used in lithium-ion batteries, grew by more than 1,000% between August 2020 and November 2022. This period coincided with the increase in production by giants such as North American Tesla and Chinese BYD, which raised prices. But since then, its price has fallen by 84.2%.

At the same time, the price of lithium hydroxide, a material most sought after because it allows the production of denser, higher-capacity batteries, fell by around 80% last year.

One of the causes of this decline, say analysts cited by the newspaper “El Economista”, is the opening of new areas for lithium extraction and processing. As a result of the enormous demand, companies in the sector, especially in Australia (the largest lithium producer in the world) are in difficulty.

The drop in prices was prolonged by an unexpected slowdown in demand for electric cars. For example, in the last quarter of 2023, the United States recorded a year-on-year increase in sales of 40%, a volume lower than the 49% in the previous quarter. In Europe, the drop in electric sales was around 4% in December compared to the previous month. Even in China, a country that accounts for 60% of new global electric car deliveries, sales of hybrid and electric vehicles fell 39% in January this year compared to the previous month.

Albemarle, the world’s largest lithium producer, plans to cut its spending from $2.1 billion in 2023 to $1.6 billion, including workforce cuts. At the same time, the company ruled out the acquisition of Liontown Resources, an Australian mining company, an operation estimated to cost approximately 4.2 billion dollars.

Kent Masters, deputy director at Albemarle, recently pointed out that prices are currently unsustainable as they are below reinvestment and operating cash flow levels.