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Lithium: Will Price Keep Up With Growing Demand?

9 November 2023 13:40
Lithium

The burgeoning demand for lithium has captivated explorers, producers, and investors alike. However, concerns are mounting as lithium prices are softening, with supply chain congestion and producers reporting lower realised prices for spodumene and lithium chemicals in the first quarter of fiscal 2024.

Lithium Demand

The surging lithium market has been primarily fuelled by the rising popularity of electric vehicles (EVs) and the transition towards renewable energy sources.

Projections indicate that in 2030, global lithium demand will exceed 2.4 million metric tons of lithium carbonate equivalent, doubling the 2025 forecast. Increased demand and the robust growth of the EV battery market is anticipated to drive lithium consumption to an estimated 3.8 million tons by 2035.

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Figure 1: Projection of lithium demand worldwide from 2020 to 2035 in 1,000 metric tons of lithium carbonate equivalent. Source Statista.

Bridging the Gap Between Price and Demand

It would be logical to expect that increasing demand would drive up selling prices, as was evident in late 2020 when lithium prices experienced a remarkable surge. Bloomberg’s calculations indicated that the total spot value of lithium consumption surged from approximately $3 billion in 2020 to a staggering $35 billion in 2022.

However, despite this remarkable rally, the landscape in 2023 presents a stark contrast, with the market price of lithium faltering, prompting analysts to ponder the factors behind this dramatic reversal and question whether prices will ascend once more.

Lithium, unlike traditional commodities, lacks an official spot price due to its classification as a non-fungible specialty chemical. Market analysts typically reference the price observed in Chinese markets, which has seen a sharp decline, now resting below CNY165,000 per tonne, with Lithium hydroxide and carbonate assessed prices in China falling 74 per cent.

Several factors have contributed to this price decline such as; relatively weak economic outlook in China, surpluses in EV inventory, supply chain congestion, and a disruption in the pricing dynamics between spodumene and lithium chemicals.

While analysts may hold varying perspectives on whether lithium has reached its peak and demand has waned, many believe that the current downward pressure on prices is primarily due to the expanding supply outlook driven by ongoing exploration and extraction efforts.

Explorers Banking on Growing Demand

Australia is strategically poised to assert its dominance in the flourishing lithium market, being the world’s top lithium producer, contributing a substantial 53 percent of the global supply, and ranking second in terms of known lithium resources.

This is further evident in the aggressive merger and acquisition activities carried out by major mining giants across the country, such as Albemarle‘s (NYSE: ALB) attempted takeover of Liontown Resources (ASX: LTR), the $1.63 billion acquisition of Azure Minerals (ASX: AZS) by Sociedad Química y Minera de Chile S.A. (NYSE: SQM), and the influential involvement of Australian mining magnate Gina Rinehart in the sector, all of which point to a potentially promising long-term future for this commodity.

The softening of lithium prices hasn’t deterred many small to medium cap explorers in Australia, who continue the efforts in this space.

Raiden Resources (ASX:RDN)

Raiden Resources‘ is a notable example of this, progressing its exploration efforts in Pilbara region through its lithium portfolio including the Andover North and Andover South Lithium Projects, Mt Sholl Nickel/Copper/Lithium Project, and Arrow Gold/Lithium project.

Raiden’s Andover South, strategically located near Azure Minerals Andover Project, believed to host one of the largest lithium resources globally, has made substantial discoveries including a 50-metre-wide pegmatite with high-grade lithium samples up to 3.80% Li2O.

RDN’s Australian Stock Exchange-listed share price has risen 25.641% and is currently trading at $0.049 (1.10pm UTC+ 8 hours).

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Figure 2: Raiden Resources share price November 5 – November 9, 2023

Bulletin Resources Limited (ASX:BNR)

Bulletin Resources Ravensthorpe Lithium Project hosts outcropping spodumene bearing pegmatites and is strategically located proximal to the Mt Cattlin Lithium Mine which hosts a resource of 8.0Mt at 1.0% Li2O.

Bulletin believes strong opportunity exists to discover economic quantities of mineralisation at the Ravensthorpe Project, with it reporting other known outcropping pegmatites remain to be tested.

BNR’s Australian Stock Exchange-listed share price is currently trading at $0.165 (1.10pm UTC+ 8 hours).

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Figure 3: Bulletin Resources share price November 5 – November 9, 2023

Nickelsearch Limited (ASX:NIS)

Although Nickelsearch is a dedicated nickel sulphide explorer in WA, it has identified 28 lithium areas of interest located within its flagship Carlingup Nickel Project.

Its exploration at the Project has additionally confirmed spodumene bearing pegmatites with grab sample assays up to 4.99% Li2O and 5.19% Li2O.

NIS’s Australian Stock Exchange-listed share price is currently trading at $0.098 (1.10pm UTC+ 8 hours).

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Figure 4: Nickelsearch share price November 5 – November 9, 2023

Future Outlook

Despite softening lithium prices, the role the critical mineral must play in the electrification needed for a greener future supports continued demand for the soft metal.

Analysis may be polarised on whether pricing will rebound, but whilst explorers like Raiden, Bulletin and Nickelsearch continue their discoveries, the future for lithium looks bright.

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