A swift recovery in electric vehicle (EV) demand is significantly impacting the lithium market, resulting in a nearly 50 percent increase in prices for the critical battery material. According to Reg Spencer, a lithium expert at Canaccord Genuity, the firm underestimated the demand surge in regions such as China and Europe when making earlier forecasts for 2024.
The rebound in prices follows a reduction in new lithium supply, as many companies have curtailed operations due to previous low prices. This has led to a tightening market, with prices for spodumene, a key form of lithium mined primarily in Australia, rising from USD 575 per tonne in June to approximately USD 850 per tonne, as reported by S&P Global Platts. The increase in prices has also revitalised lithium stocks, with IGO rising by 37 percent and Liontown Resources soaring nearly 60 percent.
Spencer noted a shift from a cautious outlook to a more optimistic perspective for the lithium sector. “We have pivoted from our conservative stance… we think the down cycle in the sector has now likely passed,” he stated in a client note. This shift is attributed to robust global EV sales, which have increased by 30 percent compared to the same period in 2023, with China experiencing 32 percent growth.
Market Dynamics and Future Projections
The surge in EV demand is set against a backdrop of increasing competition among domestic automakers in China, resulting in lower prices for consumers. In Europe, the EV market has expanded by 26 percent this year, which partially compensates for stagnation in North America.
Moreover, the lithium supply chain is facing challenges as regulatory pressures lead to production halts. For instance, Zangge Mining had to stop operations at its Qarhan project after discovering issues with its mining license. Additionally, eight mines in Jiangxi were ordered to submit reserve verification reports due to licensing flaws, according to Morgan Stanley.
Canaccord Genuity now anticipates a significantly smaller surplus in lithium markets for both this year and the next. The firm projected a potential deficit of 12,000 tonnes by 2027, which could drive spodumene prices to around USD 1,100 per tonne.
The investment outlook for lithium stocks has improved as a result of these developments. Canaccord has assigned a “buy” rating to Pilbara Minerals and a “hold” recommendation for both IGO and Liontown Resources. The brokerage has also upgraded Core Lithium to a “speculative buy,” aligning it with other ASX-listed lithium explorers such as Vulcan Energy, Patriot Battery Metals, Ioneer, Wildcat Resources, and Galan Lithium.
As the market continues to evolve, analysts remain focused on the interplay between demand growth and supply constraints, highlighting a pivotal moment for the lithium industry as it supports the expanding EV market.
