BackLithium Prices Are Down, Cheaper Batteries and EVs Could Follow
Key ingredient in batteries has fallen more than 30% after big rally
PremiumLithium prices are reversing after a two-year tear, a potential boost for consumers and auto makers that got hit by rising battery costs last year.
Prices for lithium are down more than 30% this year, ending the two-year run that pushed up the value of the key battery material by a factor of 12, according to Benchmark Mineral Intelligence. The drop takes prices back to more sustainable levels after their epic run, traders say.
The falling prices are due to slowing demand for electric vehicles, particularly in China, and volatile markets that are making traders cautious. Prices for other metals that go into batteries, such as cobalt and nickel, are also sliding.
“It will be a bumpy couple of months," said Eric Norris, president of lithium at Albemarle Corp., one of the world’s largest producers. Prices are still high enough to motivate Albemarle and others to move forward with new projects, such as recently announced plans to build a $1.3 billion lithium-processing facility in South Carolina.
The Charlotte, N.C., company expects the pullback to be short-lived, said Mr. Norris. Shares of the company and other producers in the sector have retreated in recent months after a long rally.
Lower prices for battery materials could provide some relief for auto makers and consumers after commodities helped lift battery prices about 7% last year, according to data provider BloombergNEF. Last year’s battery-price increase bucked a decadelong trend that made electric cars cheaper because batteries are their most expensive component. Prices for battery cathodes are down about 30% this year, according to Benchmark.
It typically takes months for moves in metal prices to ripple through to car costs because buyers negotiate long-term price contracts.
The price reversal comes with electric auto makers such as Tesla Inc. and Ford Motor Co. already cutting vehicle prices to attract more customers in a competitive market. Ford recently said it expects to lose about $3 billion on its electric-car business this year, highlighting the cost pressure on manufacturers.
Reports that a big battery supplier to both companies, China’s Contemporary Amperex Technology Co., or CATL, is offering battery-price discounts to some customers are also hurting sentiment, analysts said. CATL recently sold a stake in an Australian lithium producer, a move seen by some as a bet that commodity and share prices in the sector will drop.
For now, lithium prices are still high and auto makers are worried about securing enough supply. General Motors Co. recently invested $650 million into startup Lithium Americas Corp. for the right to obtain material from a planned mine in Nevada. The metal’s price drop could fuel other deals or mergers and acquisitions now that valuations in the sector are more reasonable, said Jordan Roberts, battery raw-materials analyst at price and data provider Fastmarkets.
Albemarle is attempting to buy Australian lithium producer Liontown Resources Ltd. for roughly $3.7 billion. Liontown rejected the latest offer, saying it undervalued the company.
The U.S. government is also pouring money into the sector to support domestic production, making billions of dollars of loans and grants to Albemarle and other suppliers. Last year’s climate legislation offered new tax credits for electric cars tied to their domestic content.
EVs accounted for 10% of U.S. vehicle sales in December, up from 2.3% in 2020, according to the Alliance for Automotive Innovation. In 2022, 10.5 million EVs were sold worldwide, up nearly 60% from the previous year, according to research firm Rho Motion, which expects global sales to jump nearly 40% this year.
Most analysts already expect long-term battery metals supply to fall well short of demand. If the notoriously boom-and-bust markets suppress prices for a long period and make producers more cautious about investing in supply, the current slide could make that problem even worse, some said. Last week, miner Jervois Global Ltd. said it was suspending final construction of its Idaho cobalt project, citing low prices for the key battery metal.
“With something so volatile, it’s hard to make decisions," said Howard Klein, founder of RK Equity, a New York firm that advises companies and investors on the lithium business. “Whenever you have a bout of uncertainty like this, it slows capital, which therefore slows production."
Rising short-term supplies of nickel and cobalt are also contributing to the recent price drops, analysts say. A dispute between a Chinese cobalt producer and the government of the Democratic Republic of Congo, the world’s largest supplier, has halted exports. That has prompted worries that the glut of metal could hit the market at any time.
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