Battery metal lithium is dirt cheap, and could have further to fall

The race to build new mines for a clean-energy transition that’s expected to need lots of lithium has pushed global production out of lockstep with demand in the small but fast-growing market.

Lithium-ion batteries are key to powering electric vehicles, among other things, but consumers have been slower to make the switch from gas-powered cars than many investors and auto executives envisaged.

Instead of cutting back on lithium output to balance easing demand growth, miners have sought to ride out the downturn by slashing costs and putting off new projects.

This week, a closely followed lithium price from Benchmark Mineral Intelligence sank to its lowest level since the market-data company began publishing weekly prices in early 2023.

That price, for Asia spot lithium carbonate, fell to $12,500 a metric ton, down 3.8% from a week earlier. A year ago it was $43,000 a ton—which at that time looked like a bargain to some versus January 2023, when it fetched $76,000 a ton.

Other benchmark prices show the market at around a three-year low.

Lithium’s worsening slump follows a two-year boom that took the little-known commodity to record-high prices and fueled new mining investments.

The pullback is a win for consumers and automakers by reducing battery costs. For miners, not so much.

“It is very, very tough out there," said Tony Ottaviano, chief executive of Liontown Resources, an Australian lithium company.

For companies like Liontown, things could get worse before they get better.

Stockpiles of lithium in China, which dominates refining of the commodity as well as battery-cell manufacturing, are bloated, and the glut is growing. Analysts at Citi forecast a 14% increase in global lithium demand this year, but an 18% rise in supply.

In China’s Qinghai Province, where producers extract lithium from salt lakes, output is experiencing a seasonal boost, adding to pressure on prices. Evaporation rates at the brine ponds are more favorable during the warmer months, said Daisy Jennings-Gray, head of prices at Benchmark Mineral Intelligence.

In western Australia, Liontown’s own big new mine is due to start producing a raw form of lithium, called spodumene, by the end of this month.

Buyers want diverse sources of supply, said Liontown’s Ottaviano, as the miner earlier this week struck a deal with battery maker LG Energy Solution to consider jointly developing a refinery for producing battery-grade lithium. War, the pandemic and tensions between the West and China have exposed the fragility of supply chains in recent years.

Many lithium companies have supply deals already in place with battery producers or automakers. Liontown has sales agreements in place with Tesla and Ford, as well as LG Energy Solution.

Still, inflation, higher interest rates and a hesitancy toward certain aspects of owning an electric car—like access to charging stations—have tempered expectations for EV sales, particularly in the U.S. and Europe, analysts say. Auto analysts at Citi have downgraded their EV adoption forecasts twice in the past nine months.

Some lithium companies are beginning to feel the squeeze, said Jennings-Gray.

Lake Resources, a small Australia-listed developer, on Monday said it will need to significantly reduce costs and try to sell some of its assets in Argentina’s lithium-rich Jujuy and Catamarca provinces. A plan to find a partner for its flagship lithium project will likely take longer than expected because of the market malaise, it said.

A number of other companies, including Charlotte, N.C.-based Albemarle, have already announced layoffs and delays to investments.

Analysts are betting a period of even-lower prices is ahead—a necessity to rebalance the market, they say.

Citi analysts estimate lithium futures could fall by another 15% to 20%. Prices could then rebound as early as next year, especially if confidence in electric cars improves again, they added.

A bottom for lithium prices is certainly closer, analysts at Morgan Stanley said in a note to clients this week. “But we are not there yet."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com