Lithium Takes a Breather After Record Run Amid Buyers Resistance

The battery-making ingredient is about 500% more expensive than a year ago as demand for electric vehicles has accelerated. The prolonged surge in prices has made Beijing nervous and a range of industry participants, from lithium producers to the main car association, were summoned to a meeting earlier this month to discuss “a rational return” for the market.

It follows similar interventions across a range of commodities, from coal to iron ore and rare earths, as the authorities attempt to manage prices after last year’s spike in factory-gate inflation, and amid fresh concerns over the impact of the war in Ukraine on energy markets. Battery metals are a particular pressure point as Beijing strives to transition to a greener economy and demand for EVs continues to run hot.

Bloomberg Intelligence expects the share of EVs in retail vehicle sales to reach about 20% this year, from 14% in 2021. The expected sunset of subsidies by year-end, the fear of further price hikes and spiking gasoline prices could all motivate car buyers to buy rather than wait, BI said.

Now, lithium prices are showing signs of stabilizing, mostly due to rising supply from the provinces of Qinghai, Sichuan and Jiangxi, Daiwa Capital Markets’ analysts Dennis Ip and Leo Ho said in an email.

The impact of seasonal increases in production are likely to be augmented by “increasing pressure from demand resistance,” Alice Yu, an analyst at S&P Global Market Intelligence, said in a note.