Lithium price and stocks are at risk amid surplus concerns

Lithium price continued its freefall this week as investors reacted to the ongoing demand and supply dynamics. Data by TradingEconomics shows that the price crashed to 194,500 CNY per ton, the lowest level since May. It has been in a freefall for months after peaking at 602,770 CNY in 2022.

Lithium price chart

Oversupply concerns remain

Lithium price has continued struggling this year even as demand for electric vehicle continues rising. In a recent report, analysts at the International Energy Agency (IEA) said that the total number of EVs sold in 2023 will be more than 14 million. That will be a 35% YoY increase.

Many EV companies like Tesla have seen double-digit growth in the past few years, with Tesla being the key driver. This is notable for lithium since it is one of the most important commodities used in the manufacture of EV batteries.

Therefore, lithium price has crashed hard because of the rising fear of oversupply in the industry. This fear accelerated on Monday when the US made a huge lithium discovery in Nevada. 

While the figure has not been confirmed, estimates are that lithium deposits in the volcano is between 20 million and 40 million metric tons. This makes it bigger than the current lithium deposit in Bolivia.

The lithium find in the US will solve one of the biggest challenges for American politicians who have long worried about China’s dominance in the industry. It is also notable since the world is already going through a surplus. In a report in March, analysts at Bank of America predicted a big surplus this year as EV demand in China eased.

Lithium mining has been increasing in the past few years. Production rose to 130k metric tons in 2022 from just 28k in 2010. Production will peak at 2.1 million tons in 2028

Lithium stocks plunging

The falling lithium prices explain why most lithium stocks have plunged this year. Lithium Americas stock price has plunged by more than 41% from the highest level in 2022. The same is true for other lithium companies like Lithium Lion Metals, and Lithium Chile have all retreated.

In Australia, companies like Pilbara Minerals and Liontown have seen their shares retreat sharply this year.

Lithium supplies remain abundant for now, with the leading producers being Australia, Chile, China, Argentina, Brazil, and Zimbabwe. With its new find, the US will become a big producer by 2026 when Lithium Americas will start production.

The same trend is happening in nickel, another important metal used in the electric vehicle industry. Data by TradingView shows that nickel price has plunged to $19,937, a ~27% from the highest level in March.