Lithium market to face transition as demand growth slows

(Posted on 02/02/24)

The lithium market is experiencing a period of transition as demand growth slows and the industry adjusts to changing dynamics, according to Wood Mackenzie’s ‘Lithium: Five things to watch in 2024’ report. While lithium remains a crucial raw material for batteries, its growth rate is decelerating due to a maturing market, subdued electric vehicle (EV) sales, and a declining intensity of use within evolving cathode chemistries.

“Global plug-in EV sales are projected to rise by 33% this year, a significant drop from the average annual growth rate of 71% observed between 2021 and 2023. Lower government incentives and inadequate charging infrastructure are expected to curtail EV sales in 2024. This shift in the EV market will have implications for lithium demand,” says Allan Pedersen, principal analyst for lithium at Wood Mackenzie.

According to Wood Mackenzie, the rise of lithium iron phosphate (LFP) cathode chemistries, which require lower lithium content, is outpacing the growth of high-nickel cathode chemistries. This trend exerts further downward pressure on the rate of lithium demand growth.

In 2023, the lithium market experienced a downward trajectory of prices, signalling a shift towards a supply surplus. This decline was primarily driven by the continuous destocking of inventories, which had a negative impact on prices. Looking ahead to 2024, Wood Mackenzie anticipates that the destocking trend will persist, further influencing the lithium industry.

According to Wood Mackenzie, the higher-cost sectors of the lithium supply chain, particularly the large lepidolite operations in China and direct-shipping-ore (DSO) supplies for processing and refining, are feeling the pinch. However, these sectors are considered marginal producers. The core of the cost curve and potential output reductions warrant closer examination.

Looking beyond supply price analysis, various factors come into play. Single-asset companies cannot halt production without jeopardising their cash flow, leading them to explore alternatives such as high-grading or reducing spending. In contrast, lithium majors with multiple assets can curtail production to restore market balance and maximise long-term asset value. Political pressure may also influence the decision to keep unprofitable assets operational.

“As we move into 2024, we predict that delays and slow project development will be announced as companies seek to preserve cash. Meanwhile, M&A activity may increase as lithium majors look for growth opportunities and mining majors consider entering the lithium space,” Pedersen says.

According to Wood Mackenzie’s analysis, several new resource projects and conversion projects are set to start in 2024. Each project will face unique commissioning challenges, regardless of the company’s experience. Mining companies will face challenges related to the ore body and concentration of the ore, while brine projects will have to contend with the variability of the resource. Refining projects, on the other hand, will need to deal with the precision chemistry required to produce products and quality that meet the supply chain’s needs for rechargeable batteries.

“The lithium market is going through tumultuous times,” says Pedersen. “While demand has nearly tripled in the past three years, reaching around 1 million tons in 2023, the growth rate is expected to moderate. Nevertheless, the industry's fundamentals remain excellent, driven by the global push to decarbonise,” Pedersen adds.