Durban, South Africa — Today’s lithium price is created from several data points. Like most products, there is a cost to producing it. Extraction and processing affect its pricing.
Lithium is primarily obtained through mining, brine extraction, and recycling. The costs of these processes, including labour, equipment, energy, and environmental regulations, impact the final price. Some pricing elements are fixed, while others are subjective and highly variable. Understanding how lithium prices move ensures you know if the amount offered is fair in today’s market.
How Often Does the Lithium Price Change?
The global lithium market is known to experience periods of relative stability and sudden price spikes or declines. The frequency of lithium price changes can vary depending on market conditions, supply-demand dynamics, and other factors. Although predicting an exact frequency or schedule is not feasible, there are some insights from past trends to consider.
From a long-term view, the price of lithium has generally shown an upward trend due to increasing demand from industries such as electric vehicles and energy storage. Short-term volatility causes changes to happen more frequently. Contract prices may influence this issue, especially when agreements are set for 12 months or more. There is also a spot market for lithium where prices are negotiated for immediate or short-term delivery. It is even more volatile as investors react quickly to changing conditions.
Why Is the Lithium Market Volatile?
Lithium has become a commodity. That means its prices are dictated more by the laws of supply and demand than other factors. If it is scarce, the lithium price rises. When it is available in abundance, then the lithium price falls. Outside of this initial source of volatility, market prices for lithium can be influenced by the following factors.
- Limited Production. The lithium market is dominated by a relatively small number of primary producers, mainly in a handful of countries, including Australia, Chile, and China. The concentration of production in these regions makes the market susceptible to geopolitical, regulatory, and environmental factors that can disrupt supply.
- Technology Advances. While lithium-ion batteries currently dominate the energy storage market, technological advances and potential substitution pose risks to the long-term demand for lithium.
- Investor Sentiment. The lithium market has attracted significant attention from investors due to the promising growth prospects of electric vehicles and renewable energy. Speculation can influence short-term price movements in the market as traders respond to news, rumours, and market trends.
- Global Economic Factors. The overall economic conditions and macroeconomic factors can also affect the market. GDP growth, industrial production, and investor confidence can impact the demand for lithium prices.
The lithium market continues to evolve, so additional factors can shift the pricing profile as time passes. Look for new technologies as they emerge, production capacity changes, and availability shifts to alter these dynamics.
What Is the Cost of Lithium?
Lithium typically costs between USD 5,000 to 8,000 per ton to produce. It can sell for ten times that amount in some markets. In 2022, the average price of battery-grade lithium carbonate was estimated to be approximately USD 37,000 per ton in some markets. Although the overall price of lithium is generally climbing, analysts have seen it fall because of short-term issues like slowing sales growth in China and Europe. With new mines and processing plants producing a larger supply, the additional availability offers more balance to supply and demand requirements. As prices fall, investors look for lithium to rebound when its cost factors change.
What to Expect from Rebounding Lithium Prices
When the lithium price starts rebounding, the conditions often incentivize increased investment in the global supply chain. Higher prices make it more economically viable for existing producers to expand their operations and for new projects to come online. A higher lithium price allows companies to expedite the development of new production projects or increase their capacity at existing facilities.
Ramping up lithium production can take time, as it often involves complex processes and regulatory approvals, so the full impact of price changes is not always immediate. Economic growth, government incentives for electric vehicles and renewable energy, regulation changes, and geopolitical factors can influence demand patterns and market dynamics. How market participants respond, particularly end-users, to rebounding lithium prices often dictates the long-term strategies of those involved.
Any extent and duration of lithium price changes depend on the balance between supply and demand. It's advisable to consult research reports, market analyses, and expert opinions to gain a more comprehensive and up-to-date understanding of the conditions this industry faces.