Lithium will bounce back ?! (Hmm no … )

Yet this is the headline of the newspaper Les Echos.

Based on analyses by @citi and @Benjamin Louvet (OFI Invest AM). Journalist @Etienne Goetz explains why the metal will eventually bounce back.

This article talks about it as if it were a foregone conclusion and, in my view, can be misleading.
You can always invest and say, yes, but it will go up.

We’ve seen the same thing happen to copper in recent months:
AI goes up → need for copper → speculation.
Reality takes much longer; commodity futures markets are much shorter than long positions in equities.

Lithium is no exception. Just like with AI, government tightening on decarbonisation obligations has forced carmakers to switch to electric cars.

This is the point underlying the price of lithium and the number of electric cars sold.
75% of the world’s lithium is used to make batteries (mainly for cars). If sales aren’t growing, then there’s no increase in demand for lithium.

States and mining companies have taken advantage of the 2020s to supply lithium and launch new projects. Given the current context, lithium production is mature.

The price of lithium will only rise if demand for electric cars or batteries increases considerably.

According to our analysis, given the maturity of production and the production capacity of the new plants, growth in the electric car market should be as strong—if not stronger—than what happened between 2018 and 2022.

To date, the electric car market has been shrinking or stagnating (see Tesla).
We are therefore a long way from the massive increase in sales that is needed.
The experts at Citi are forecasting a recovery in 2025. We think that this is far too optimistic, and are aiming for 2027/2028.

As long as household consumption does not increase in line with credit availability to finance new vehicles, it is not possible to see an increase in the number of electric vehicle sales.
In fact, manufacturers have maintained their internal combustion ranges for longer than expected.

As far as we are concerned, lithium will stabilise at around $15,000 a tonne until car sales take off.

It will be interesting to keep an eye on consumption in the Chinese domestic market, which could be artificially boosted by local subsidies. The aim is to maintain China’s leadership in low-cost battery production and to counter Western plans for battery manufacturing plants.

If you would like to find out more and forecast mineral production, please contact us.

Les Echos article:
https://www.lesechos.fr/finance-marches/marches-financiers/pourquoi-les-prix-du-lithium-vont-finir-par-rebondir-2108378

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