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Why 2023 is a pivotal year for lithium prices

Five years ago, the lithium industry’s primary concern was insufficient investment.

As investors paid increasingly more attention to developments in the sector, we have seen lithium prices soar since 2021 on the back of booming global electric vehicle (EV) sales. This saw the total spot value of lithium consumption reach $35 billion in 2022, up from $3 billion in 2020.

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The scale at which price hikes continued throughout 2022 was unprecedented, despite the expectation that lithium demand would continue to outpace supply.

These prices were buoyed by ongoing global supply shortages from outpaced demand for EVs and renewable energy storage systems, coupled with supply-chain disruptions.

Market dynamism has been compounded by an over-reliance on China, which controls almost 60 per cent of the world’s capacity for refining and processing battery metals, and the invasion of Ukraine, which has seen economic sanctions enacted against Russia, one of the world’s key suppliers of lithium products.

However, these insecurities have created an economically transformative opportunity for Australia on a scale that surpasses the country’s previous dominance in commodities. Not only is Australia the world’s largest exporter of iron ore and liquefied natural gas (LNG) and spodumene concentrate – a raw form of lithium – is also on the list.

What will be the decisive factor affecting the lithium market in 2023?

Demand for EVs is forecast to rise by over 40 per cent over the next two years, which will continue to support prices. But future price uncertainty is governed by a number of other factors: whether supply growth is able to keep up with demand, the emergence of new lithium mines with project execution success, geopolitical and economic instability, and the rise of alternative battery technologies.

Considering these factors, the lithium outlook remains positive, with average prices in 2023 likely to fall by approximately 8 per cent from the highs of 2022.

Factors keeping lithium prices afloat

By 2040, the International Energy Agency expects lithium demand to grow more than 40-fold if the world is to meet its Paris Agreement goals. Lithium demand will therefore continue to grow as more countries pledge to reduce carbon emissions and invest in EVs and energy storage systems, both of which rely heavily on lithium-ion batteries.

As the world’s largest electric vehicle market, China is expected to remain the largest lithium consumer in the coming years, with demand on track to grow to 180,000 metric tons by 2030. As battery supply chains begin to develop, demand for lithium is also set to pick up considerably in the rest of Asia, Europe, North America, and India.

In fact, half of all new cars sold in the US are set to be electric by 2030, with similarly ambitious plans in place across the Western world.

To support these plans, policies such as the US’ Inflation Reduction Act have increased EV tax credits to $7500 on qualified vehicles through to 2032, a move designed to bolster demand. The Act also contains new sourcing requirements, explicitly offering subsidies for automakers that diversify their EV battery supply chains out of China.

This Act, coupled with US tariffs on imported goods that contain lithium from China, has made it more expensive for US companies to manufacture EV batteries, propelling lithium prices in 2023. If geopolitical tensions continue to escalate, it could lead to further supply-chain disruptions, contributing to continued price volatility.

Factors placing a downward pressure on prices

China’s decision to withdraw its decade-long subsidies for EV purchases as of January 2023 has exacerbated affordability issues and ultimately softened demand. In response, automakers have increased EV discounts in order to maintain sales. Companies such as Tesla have already cut prices by 12 per cent since September 2022.

Subsidy withdrawals coupled with China’s surging COVID-19 cases will continue to dampen demand over the next six months. We saw lithium carbonate prices fall in China to a 13-month low of CNY362,500 ($77,660) per tonne in early March, the lowest since June 2022 and over 20 per cent down since their all-time high of CNY600,000 ($128,542) per tonne in November 2022.

Beyond 2023, two additional demand factors are at play.

First, advancements in alternative battery technologies, such as solid-state batteries, are seen as a potential replacement for lithium-ion batteries due to their higher energy density, longer lifespan and increased safety. Companies including BMW, Dyson and Toyota are already investing in solid-state battery technology; however, it could take several years before they become commercially viable and for lithium-ion batteries to be replaced on a large scale.

EV batteries also typically have a 10-year function life, with the potential to create a large challenge for future waste management.

Second, while there is a global push to utilise critical minerals like lithium in order to decarbonise, the impact of mining this commodity carries environmental and contamination risks given current practices are energy and chemically intensive.


While the lithium supply shortage remains, we could expect prices to fall from a supply wave that may hit the market in 2023, prompted by a boost in production capacity from existing and near-term producers in Australia and South America’s ‘lithium triangle’ of Chile, Argentina and Bolivia, which together hold the majority of the world’s known lithium resource.

Chile alone is responsible for a quarter of world production and holds more than 40 per cent of global reserves, followed by Bolivia (24 per cent) and Argentina (21 per cent). Australia was the world’s largest lithium-producing country in 2022, with its largest lithium mine, Greenbushes, contributing 40 per cent of global supply.

Greenbushes, among other growing hard-rock lithium operations in Western Australia and the Northern Territory, is subject to future expansions, including for lithium chemicals. As a result, projected global output of lithium carbonate from top producer, Australia, is expected to reach 915,000 tonnes in 2023, a 3 per cent rise from 2022’s estimate.

Lithium shortages are expected to ease as this supply comes online, placing a downward pressure on prices.

Despite a broad agreement pointing to a major increase in lithium supply in 2023 following a wave of expansions and emerging projects, the divisive question is whether they will successfully deliver and meet sustained demand forecasts.

Discussions about hopeful expansions rely on top producers from Chile, China and Australia. However, if these larger players hit hurdles in launching volumes of lithium supply due to the complex extractive industry, global production forecasts are expected to be pegged between 22–42 per cent in 2023.

Concern is also channelled toward the less-established producers who are subject to tough regulatory, technical and commercial challenges. While the emergence of new lithium mines in countries such as Canada and the US are on the horizon, these challenges, as well as seeking a knowledgeable labour force, are likely to delay the time in which these mines become operational.

Does this present an opportunity for Australia?

Australia is in great stead to position itself as a critical minerals mining and refining superpower due to the scale of our wind and solar resources, sparsely populated continent and financial market stability. These factors, combined with the country’s energy independence, supply-chain security and critical geostrategic consideration, presents a large opportunity for Australia.

With the rising global commitment toward decarbonisation, Australia is at the beginning of a global significant investment boom, with its top-five ASX-listed lithium firms holding a collective market capitalisation in excess of $50 billion.

Australia is already the world’s largest producer of hard-rock lithium spodumene and by 2024, Australia is expected to account for 10 per cent of global lithium hydroxide monohydrate (LHM) production. Given China currently processes 60 per cent of the world’s LHM, almost all sourced from Australian lithium spodumene mines, this emphasises the strategic opportunity for Australia to value-add before export.

The development of these lithium processing and associated downstream industries in WA will also benefit the economy, projected to create up to 52,000 Australian jobs in the state by 2050.


Source: Australian Resources & Investments

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