Needing a recharge?

The impact of falling lithium prices on the industry. 

Lithium prices have dramatically fallen from their peak of around USD 80,000 per tonne in November 2022 to approximately USD 15,000 in June 2024. This sharp decline is attributed to increased supply, a drop in demand for electric vehicles (“EVs”) and the slowdown of the Chinese economy.  

“Several reliable reports have predicted a fall in lithium prices, a fall that has probably not yet found its floor,” cited a lithium mining company executive. While a price rebound could happen if the demand for EVs surges, driven by a general increase in global consumer spending post-COVID-19 and inflation shocks, advancements in extractive technology make it unlikely that prices will return to the highs of late 2022.  

Long-term projections suggest prices might stabilise around USD 20,000 to USD 22,000 per tonne by 2025. The mining executive affirmed, “In 2025, the situation will be somewhat better in relation to the current floor or near-floor where we are, but far from the highs reached some time ago.”  

“In 2025, the [lithium] situation will be somewhat better in relation to the current floor…but far from the highs reached some time ago.”

Lithium mining company executive, LatAm 

The significant drop in lithium prices is expected to substantially impact companies specialising in direct lithium extraction (“DLE”). “This technology is economically and technically successful under certain conditions.” The former President of the Mining Corporation of Bolivia expanded, “When the conditions are met, the cost of obtaining a tonne of carbonate is below USD 2000. Otherwise, the cost will rise significantly due to the number of pools to be built and the high investment cost to cover the inefficiency.” 

Companies like Standard Lithium and Lilac Solutions, which have made considerable investments in new technologies and infrastructure, may face reduced profit margins and increased financial pressure. “There is research into lowering operating costs, regenerating reagents and minimising energy consumption so as not to be so tied to the key condition of price,” informed the former Bolivian mining corporation president. “If DLE operating costs do not fall below USD 10,000 per tonne, DLE will not replace ponds in current operations.” 

Lower prices can delay the return on investment or eliminate any chance of recuperating the initial capital invested, forcing companies to reassess their operational strategies and cost structures. “From USD 80,000 per tonne of carbonate, there has been a drop and now we are talking more like USD 13,000 per tonne,” reported the former president. 

Additionally, the market downturn could hinder further investment and expansion plans, leading to potential layoffs and consolidation within the industry. Firms with higher production costs or less diversified portfolios will be particularly vulnerable to financial instability and an increased risk of insolvency. “The most affected will probably be the marginal projects, which are directly linked to prices.” The lithium mining company executive elaborated, “but not those of a larger scale, whose plans are longer term and are not so dependent on the evolution of prices in the short-term.” 

“The most affected will probably be the marginal projects, which are directly linked to prices.”

Lithium mining company executive, LatAm 

Despite the significant price drops, “production is likely to continue to increase in the coming years.” Due to advanced projects and long-term strategic investments, the executive continued, “both globally and in the region” in the coming years. Large-scale projects are viewed as long-term goals, particularly by Chinese companies, which consider these investments strategic rather than purely economic. 

“The role of Chinese investment is very relevant in this sector.” The executive of a lithium mining company elaborated, “The Chinese look at the long-term. They do not make fundamental decisions because of a fall in prices; for them, these are strategic investments. This could be different for Western companies, particularly some American companies investing in the country.” For the latter, the impact on cash flow can have a substantial impact, but this will not be the case for Chinese investments. 

The fall in lithium prices could indeed lead to insolvencies and a cannibalisation of the market by the more significant players who have the most resources. Large miners such as Albemarle and Arcadia, the latter investing heavily in Argentinian projects this year, could be candidates to expand their operations. “At least in the case of Argentina, by the end of 2024 we will find ourselves with record exports,” informed the mining company executive. “We should not lose sight of the fact that the current government wants to give the sector a big boost, so the drop in prices can surely be compensated by lower taxes or other measures to encourage investment.”  

The potential for mergers and acquisitions exists among smaller projects with less financial backing. “I don’t see any big moves, at least among the big companies, which are betting on the long term and see this investment as something strategic,” commented the former mining president. The focus will likely be on operational efficiency, cost reduction and intelligent investments to navigate the current market conditions.  

The industry must focus on innovation, cost management and strategic investments to navigate the evolving market landscape and capitalise on future opportunities. The market is expected to stabilise around 2027-2028 as supply and demand find a balance, “even with low prices, with the next entry of very advanced projects, it is possible that at least in the case of Argentina, by the end of 2024 we will find ourselves with record exports,” concluded the Mining Corporation of Bolivia’s former President.  

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