Lithium Demand Shows Signs of Deceleration: Wood Mackenzie

Lithium demand is decreasing as the mineral market reaches a mature stage and as the electric vehicle (EV) market reaches an anticipated decline, according to data provider Wood Mackenzie. Despite these challenges, the firm asserts that the industry's fundamentals remain robust, positioning it well for 2024. 

Wood Mackenzie predicts a 33% increase in electric vehicle (EV) sales for 2024, indicating a deceleration compared to the average annual growth rate of 71% observed between 2021 and 2023. The firm associates this decrease with lower government incentives and inadequate charging infrastructure globally, which disincentivizes demand. Furthermore, the rise of lithium iron phosphate (LFP) cathode chemistries, which have lower lithium requirements, is expected to surpass growth of high-nickel cathode chemistries, putting more pressure on the lithium demand growth rate. 

The firm said it is expected that lithium prices will become more stable as the market reaches a maturity stage. “In 2023, we witnessed a downward trajectory of prices as the market moved toward a supply surplus. Prices were impacted negatively due to the continuous destocking of inventories. We expect the destocking trend to continue in early 2024. This will be followed by a period of minor restocking before the market reaches a ‘new normal’ for inventory levels and the market enters a more mature state where supply and demand fundamentals take precedence in price setting,” reads the report. 

The firm noted this year there is a strong emphasis on scrutinizing lithium production costs after price declines throughout 2023. The firm stressed the pressure on prices is affecting higher-cost sectors of lithium supply, specifically operations with higher costs and lower grades like large lepidolite operations recently initiated in China, and the direct-shipping-ore (DSO) lithium supplies imported into China for processing and refining. However, these segments of the supply chain are considered to be potential swing or marginal producers.

In accordance with the report, Ganfeng Lithium, the world's third-largest lithium producer and China's largest, announced an expected year-on-year decline in its 2023 net profit. The anticipated decline is significant, ranging between 70% and 80%, with the projected net profit falling within the range of CN¥4.2 billion (US$587 million) to CN¥6.2 billion. This contrasts with the CN¥20.5 billion reported during the same period in 2022. 

Mackenzie notes that with a surplus in supply and a bleak price outlook under this environment, companies are expected to cut spending significantly. Furthermore, it stressed that historical trends show that when capital investments are deferred, there have been instances where demand growth outpaced supply growth. 

The firm says already-established assets are secure as they have weathered downturns. However, projects in early construction stages are prone to delays as companies prioritize cash preservation. M&As could play a more important role in this environment as major miners with healthier finances could seek discount opportunities to enter the lithium market or bolster their portfolios.

According to Mackenzie, commissioning and ramp-up processes, as in any other project, will pose challenges to companies. It noted that even experienced producers have struggled outside China, dealing with obstacles like high capital expenditure (CAPEX) requirements and a shortage of expertise in building and operating refineries. “Building an extractive asset or a refinery is extraordinarily difficult and complex, and the world is still on a steep learning curve,” the report says. 

While lithium demand remains high and its extraction will play a critical role in the transition to cleaner energy sources owing to its application in batteries for EVs and energy storage, other factors like technological advancements will also impact the lithium market.

For instance, researchers have proposed zinc-air batteries (ZAB) as a greener and more cost-effective solution. According to Edith Cowan Univerisity’s (ECU) Researcher, Muhammad Rizwan Azhar, ZABs are becoming more appealing because of their low cost, lower environmental impact, high theoretical energy density, and inherent safety. If developed properly, ZABs are posed to meet and surpass the capabilities of lithium-ion batteries. However, more research is needed. 

Advances in recycling methods could also enhance the efficient recovery of lithium from batteries, providing an extra supply for the mineral. Researchers at Chalmers University of Technology have developed a recycling method that achieves a highly efficient recovery of metals from used EV batteries. This method boasts a remarkable lithium recovery rate exceeding 98%, as reported by MBN.