China’s Control Of Supply And Demand Gives Lithium A 20% Boosts

Chinese control of both the demand for electric vehicles (EVs) and the supply of battery raw materials has sparked a surprise recovery in the price of lithium which has risen by 20% over the past three weeks.

That higher price move looks less impressive when measured against the 87.5% price crash of the previous three years.

The lithium collapse, which started in late 2022, saw the price of the metal, when traded as lithium carbonate, plunge from $83,500 a ton to a low earlier this month of $8500/t before recovering to last sales at $10,300/t.

What’s driving lithium up is a combination of tighter Chinese Government controls over domestic production and a rapid rise in sales of EVs in China where the market is stronger than the U.S. and Europe.

The EV demand factor was identified last week by the Australian office of Canadian investment bank CG Capital Markets as the primary cause of the recovery in a research note headed “Lithium. Demand is in charge now”.

Supply, according to the London stockbroking firm SP Angel, could be the more important factor with Government enforced production cutbacks said to be part of wider environmental clean-up and attempt to limit oversupply which caused the earlier crash.

Political Bargaining Tool

It is also possible that recent events in the lithium market are an example of China using its commodity market dominance to control prices and use supply as a political bargaining tool as it has done with another commodity, rare earths.

SP Angel said a new focus was emerging in China to cut over-production and excess competition which was leading to the closure of some lithium mines.

“A crackdown across a number of commodities appears to be part of a new directive to limit oversupply and lift underlying prices,” SP Angel said.

But the broker also suggested that China might be looking to control more commodities following the successful use of rare earths in tariff negotiations with the U.S.

CG Capital Markets prefers stronger than expected EV demand as the primary cause of the lithium price rebound.

“Demand is much stronger than we previously expected with low pricing hollowing out future supply growth,” CG said.

“As demand growth overtakes supply growth, we see a much tighter market and potential for continued price improvement.”

CG said that while EV sales were flat in North America global sales were growing at a rate of 30% year-on-year.

EV sales in China are up 32% reaching 14.6 million vehicles. European EV sales have risen by 26% and the rest-of-the-world has grown by 41%.

“This is being driven by user acceptance, more product choices, and lower costs,” CG said.

Energy storage is also emerging as a fast-growing market for lithium carbonate.

CG said the low point in the lithium price cycle had been reached with demand growth expected to outstrip supply growth.