Lithium prices have hit levels where few mines are making money
But the long-term demand picture for the battery metal remains strong, with EV sales growth still sitting at around 20% this year
Large and influential investors continue to hold stakes in lithium explorers and miners, with an eye to a future where demand for the commodity will grow strongly
lithium has cooled big time yet some of the resources industry’s most prominent investors – including Tolga Kumova and Gina Rinehart – continue to back companies in the sector.
It’s a sign investors with their fingers on the pulse are taking a long-term view in the critical mineral despite slowing demand growth.
The once niche and tiny lithium market is evolving and adjusting to the unprecedented rollout of electric vehicles across the globe against the backdrop of falling lithium prices.
VP Capital co-founder John So says EV demand in the two main markets, China and Europe, has fallen below expectations over the past 12 months with sales growth slowing from highs of 40% year-on-year in early 2023 to a still substantial but lower year-on-year growth of ~20%.
“This is partly driven by the longer-than-expected cost of living pressures in Europe and what appears to be a slower recovery in the Chinese economy,” he told *.
“This has also coincided with a strong increase in global lithium supply – for example in Australia alone, we have seen continued plans by Pilbara Minerals to ramp up its production and the likes of Liontown Resources commissioning its Kathleen Valley project.
“Stockpiles are increasing, and it will take some time for the market to digest the inventory.”
Any hope for a lithium bull market in FY25?
So reckons lithium prices have found a bottom given commodity prices are trading near the marginal cost of production, with many analyses suggesting most Australian spodumene producers are now unprofitable at prices below US$1,000/t.
“For example, we have seen Core Lithium, which kicked off mining in late 2022, put its operations into suspension,” he said.
“Similarly, for companies with more processing capabilities, lithium carbonate prices at close to US$10,000/t is most likely below the incentive price for any additional capacity.
“For these reasons we have seen mines such as Greenbushes – one of the last few remaining profitable operations of scale in Australia – cutting output and stockpiling production.”
Notably, Arcadium Lithium (ASX:LTM) yesterday revealed its Mt Cattlin mine in WA would transition to care and maintenance in 2025.
So said in time, as electrification and EV demand continue to accelerate at compound double digit percentages, higher commodity prices will be needed to ensure underinvestment and supply catches up to demand.
“Lithium has become a more mature market compared to a few years ago – we are less likely to see short-term, six-month boom-bust scenarios like in the past,” he said.
“This cycle will likely have at least another 18 months to play out.
“There will be green shoots in the second half of FY25 in terms of lithium commodity prices finding firmer footing, but a sustained upward cycle will likely be at least 18 months away, taking us to FY26.
“We are unlikely to retest the dizzying heights of US$5,000/t plus spodumene prices or US$30,000/t plus lithium carbonate prices any time soon.”
A golden rule in the commodity price market is to find a bottom once the commodity price hits marginal cost of production.
“Lithium prices, certainly for hard rock, [are] well past that point and it would not be surprising that most miners are not profitable,” So said. “Underinvestment in the sector will eventually lead to a more balanced market, if not a shortage, but we find commodity prices – and as a result share prices – tend to react in advance,” he said.
“At an attractive enough price, lithium equities are increasingly looking like an option play with no expiry on the sector.”
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