After a spectacular crash, the battery metal lithium is showing tentative signs of recovery. The correction that rocked markets last year set the stage for a recovery.
Chinese spot prices for lithium carbonate, a key material used to power electric vehicles, have rebounded to their highest level since December after plunging more than 80 percent in 2023. Meanwhile, on the Guangzhou Futures Exchange, the most active futures contract has risen by more than a fifth in the past month.
Given its role in batteries, lithium is a commodity crucial to the energy transition, but a global glut last year caused lithium prices to fall sharply. Despite the market turmoil, major producers remained confident, with No. 1 Albemarle Corp. Insisting that low oil prices are unsustainable, No. 2 SQM continues to expand as it is optimistic about the outlook.
The slump in oil prices has prompted some producers to cut production. Among them, Core Lithium Ltd. suspended part of its mining operations to reduce cash costs, citing a "significant drop" in prices.
"The lithium market is rebalancing and the industry is cutting production and projects," UBS Group AG said in a recent report. It also warned that there is still a surplus in the lithium market. Progress has been made on the overall balance, "but we stress that this could prove temporary if price sentiment rises too far too fast," the bank added.
In China, the industry has focused on speculation that an environmental clampdown at supply centres could exacerbate supply disruptions and thus production cuts in the west.
Not everyone is convinced, however, that the economy will rebound. Goldman Sachs Group Inc. said in a note that the recovery in lithium contract prices "should not be interpreted as the end of the bear market." It warned that the trade surplus remained substantial.
Allan Ray Restauro, an analyst at BloombergNEF, was also cautious. "The recent price increases could be a direct result of China's environmental actions," he said. He said there were no clear signs of a sustained rise in oil prices, as supply would outstrip demand despite reduced supply and slowing projects.
