The short answer is that lithium supply and demand conditions are complex and not well understood by many. This has caused many terribly inaccurate price predictions and given the lack of transparency in the market many more poor lithium price predictions will occur into the future. Where those lithium price predictions are translated into share price estimates, many of those have been and will continue to be massively wrong. Recent volatility (both down and now up) in futures prices is trying to figure this future out.
The much longer answer
When the lithium price was very strong a couple of years ago, there was a lot of commentary about stronger for longer. When lithium prices are weak(ish) as they are now, the commentary is around these multi-year recovery periods. People extrapolate what they know around how things are now to be how things will continue. If prices go in cycles, some of these predictions become horribly wrong as the cycle turns at the top and bottom. Part of the difficulty is that Lithium has spent an extended period in the strange zone of increasing demand with decreasing prices. This confuses the heck out of most people and they try to rationalise it through demand being weaker than expected. Many indicators are that demand is actually quite strong.
What appears to have happened is enough supply was switched on via the combination of reducing "consumption" in inventory supply chains, restarting mines like Bald Hill, increasing production from the big Australian mines and a large increase in Chinese Lepidolite that demand caught up with supply. Super-premium pricing to crunch demand was no longer required and prices fell. Additional supply came along via Core, Sigma Lithium, NAL (PLL/SYA), Arcadia (Zimbabwe) and more recently Mt Holland. There was also a bit of DSO out of Africa. This additional supply was enough to meet demand and prices reverted to a non-stressed state where most companies make money and a few don't. DSO basically stopped. Lepidolite growth stopped and may have decreased a bit. Its close to balanced. While there's been a huge fall in Spod prices, in a longer-term context they aren't super low now.
The market is not showing the signals of being significantly over-supplied because the events below still occur:
- Prices remain materially above the previous cycle's low's of US$400/t (which is perhaps US$500/t now due to inflation)
- Auctions of product receive strong interest with buyers paying prices above some quoted spot prices
- Suppliers of ore with less desirable characteristics like iron near or at product limits can still sell that ore and enter new longer offtakes
- Suppliers can still package the lithium units in the way that is most convenient to them (SC4.8 to SC5.2 grades) rather than the Hydroxide purchaser dictating the terms and saying SC6.0 is the best product for my Hydroxide plant, but I might consider accepting SC5.5-SC5.8 (if its low iron)
- Commentaries around inventories have them at normal working levels measured in weeks or at most a couple of months
- Medium / Lower cost producers are commencing studies around expansion
- Its been profitable to do a DSO grade shipment (Core recently shipped some fines)
Due to the above factors, it appears that demand exists for all the supply from new/restarted lithium projects. Their product has found its way through the supply chain to converters without creating ever-building inventories. There's a wildcard around how much Spod Mt Holland is supplying into the system but the two main huge projects still to create near-term supply are LTR's KV project and what is now Ganfeng's Goulamina project in Mali. There's a large number of projects dancing around saying I'm targeting 2026, 2027 and 2028 production but they aren't under construction yet. After KV and Goulamina there's a long gap till the next really big project adds to supply.
This means the market is now bouncing between competing tensions. The first is that it is supplied with what it needs (and therefore lower prices). There is still supply coming online (and therefore no need to increase prices), but how long will that supply growth last? If you have the balance sheet to do it, is it not better just to warehouse spod for a year or two and process when prices are higher? Is the next period of higher prices sooner than is normally thought?
Is there even really enough supply growth for the next two years?
Lots of demand growth forecasts exist that are 200 to 300ktpa LCE. If you take a project like KV and assume it hits nameplate on production throughput volumes and recoveries (many projects don't hit both for ages), its processing 3Mt of 1.4% ore at perhaps 80% recoveries for 33.6kt of theoretical pure Li
2O. The Li2O to LCE multiplier is 2.473x so this project adds 83kt of LCE to supply. If demand were 200ktpa then LTR supplies 5 months of world demand growth. If demand growth were 300ktpa then LTR supplies just over 3 months of world demand growth. Goulamina is 2.4Mt so its slightly smaller. If demand growth for Lithium were strong and these were the only net two projects increasing supply, the market could be back in a deficit in 2025. If either project has an extended commissioning timeframe, the market could still need this lithium but not have it available in 2024. Lithium prices remaining low for an extended period is not a forgone conclusion.
Typically, long-term over supply theories do one or more of the following:
- Assume low demand growth rates
- Assume high increases in production from Chinese lepidolite and Chinese Spod
- Assume many projects at DFS level start construction very quickly, hit their construction timelines and commission without issues
- Existing producers will increase production even if that keeps the market over supplied and prices low
The story that the market is over supplied and lithium prices are/should fall may not be as simple as it seems, particularly if one or many of the ways towards high supply don't happen. The story of being over supplied may not be that simple anymore and creates volatility in prices and that tension - is it a bear market or preparing for a new bull market could be playing out now. Big moves in the futures like today are trying to figure out where the future lies.
There will of course be those with simple minds that can only rationalise their own view prices must fall and anything else is hypothetical. What's that phrase, you can lead a horse to water but you can't make it drink.
Note: 3,000 * 1.4% * 80% = 33.6kt. 33.6 * 2.473 = 83kt LCE. the 2.473x multiplier comes from the table below.
![https://hotcopper.com.au/data/attachments/6272/6272538-acf119eecc54f9308041d5066707c6ad.jpg](https://hotcopper.com.au/data/attachments/6272/6272538-acf119eecc54f9308041d5066707c6ad.jpg)