China’s lithium prices have taken a sharp tumble this year, falling by 34% in the last four weeks alone. The decline has been driven by a slump in demand for electric vehicles (EVs) in the world’s biggest market, which has led to an excess of the metal. Spot lithium carbonate prices assessed by Fastmarkets have dropped to CNY 260,000 ($38,079.06) per tonne this week, less than half the price quoted in November 2021.
The falling prices come as China’s EV market faces slowing demand, following a cut in subsidies to the sector this year. In addition, EVs are facing stiff competition from traditional vehicles after carmakers, including SAIC Volkswagen Automotive Co and Geely Automobile, cut prices on over 40 brands ahead of stricter emissions rules taking effect on July 1. This price war is likely to continue through the second quarter, potentially causing the entire supply chain to share profit losses this year, according to Jing Yang, Director of Asia-Pacific Corporate Research at Fitch Ratings.
“The unprecedented price cuts among traditional auto makers will eat EVs’ market share in the short term, hitting lithium demand further,” said Vicky Zhao, a Beijing-based senior analyst at Fastmarkets.
The fall in lithium prices is a sharp contrast to the surge that began two years ago, driven by strong demand for EVs and limited supply. Lithium prices had soared more than 10 times from early 2021 to a record 597,500 yuan last November. The waning demand for EVs in recent months is being exacerbated by an excess of the metal, with readily available stocks in the market likely in the tens of thousands of tonnes, compared with barely any stocks in the market last year, according to Rystad and Fastmarkets.
While lithium prices in the United States and Europe have also fallen, the decline has been less sharp, with prices for lithium carbonate declining to $61.50 per kg on March 16, down 24% from a peak of $81 per kg late last year, according to Fastmarkets.
As consultancy Rystad Energy noted in a March 17 note, “The scope of such a price fall has exceeded our expectations.” The downturn in China’s EV market and the resulting fall in lithium prices are a reminder that the sector is still susceptible to the same market forces that affect traditional vehicles.
