“This high and rising low-shelf-life chemical inventories should see lithium prices fall another 15 to 20 per cent to $US10,000 a tonne,” said Citi’s global head of commodities research, Max Layton.
The broker warned that with prices at these levels, it would eventually lead to mine and or converter closures and industry rationalisation, which would eventually alleviate the “extremely large surpluses”.
Albemarle, the world’s no. 1 lithium supplier, also said this week that the low price did not justify new investments in plants for the battery metal.
The current price of the key battery ingredient is “concerning” and investors shouldn’t put money into lithium facilities at these market levels, Eric Norris, president of energy storage at Albemarle, warned at an industry conference in the US.
‘Very bearish’
He added that lithium’s long-term demand prospects, however, remained intact as demand from electric vehicles was expected to grow strongly.
Citi said it remained “very bearish” on lithium in the near term given prices were in freefall, and recommended that clients continue to short the battery material.
The broker suggested in April that investors and producers take a short position in the August CME lithium hydroxide contract, which has gained 19 per cent to date.
Citi also recommended in May a separate short on the December CME lithium hydroxide contract, which is up 14 per cent.
“We see further room for the trades to run in the near term,” Mr Layton said.
Citi noted that demand growth for lithium has halved this year compared to 2023, leaving the physical market in a surplus that is equivalent to around 7 per cent of consumption.
Expectations for global electric vehicles sales have been hit by higher interest rates, a lack of charging infrastructure and limited product options, which has caused Citi to downgrade its EV adoption forecasts twice in the last nine months.
A reset in EV expectations has had a pronounced impact on lithium balances, Mr Layton added.
Further falls
And while lower lithium prices have slowed supply growth from 40 per cent in 2023 to just 18 per cent this year, Citi believes prices need to fall further.
“A low-price environment over the next three to six months would force supply curtailments, driving physical markets to rebalance,” Mr Layton said.
Indeed, China’s domestic production of lithium chemicals remains robust, with production growth 50 per cent higher year-to-date compared to the same period last year.
Citi sees scope for prices to rebound to between $US18,000 and $US20,000 a tonne by 2025 once the physical market rebalances.
“Lithium consumption is expected to accelerate from 2025 onwards once the current negative EV sentiment fades,” Mr Layton said.
Morgan Stanley, meanwhile, predicts lithium prices to fall to $US10,000 by the fourth quarter, but warned that prices could drop below that level.
The broker noted that cathode makers in China were “well stocked” given the backdrop of US and European Union tariffs on Chinese EVs, and global trends showing an increasing preference for hybrid vehicles, which use less lithium.
With Bloomberg