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Lithium futures: Ever-growing EV demand drives positive price momentum

By Fitri Wulandari

Edited by Jekaterina Drozdovica

15:33, 17 October 2022

Petalite, petalite or castorite is an important mineral for obtaining lithium, battery industry, lithium source
Ever-growing EV demand drives positive price momentum for lithium. Photo: RHJPhtotos / Shutterstock

Prices of lithium have rallied in recent weeks as tight supply and robust electric vehicles (EV) sales boosted demand for the metal used in the making of EV batteries. 

China’s extended tax cut on low-emission vehicles purchases has driven up sales in the world’s largest EV-selling country. Demand for EVs has also been rising elsewhere despite easing global economic growth amid a high interest rates environment. 

With global EV sales expected to rise in coming years, what is the forecast for lithium futures price?

What are lithium futures?

Lithium is small by trading volume and does not have a futures market. However, the CME Group exchange does have a lithium futures market for lithium hydroxides that uses Fastmarkets' lithium hydroxide price assessment.

In 2019, the London Metal Exchange (LME) in collaboration with Fastmarkets launched a new LME battery-grade hydroxide cash-settled futures contract. It’s based on the weekly physical spot price in China, Japan and Korea, the three largest markets for seaborne lithium. 

The spot price for lithium carbonate and lithium hydroxide, the raw materials for making EV batteries, in those countries is considered the industry benchmark for battery grade lithium.

Lithium prices: Historical view

A supply glut caused by increased output from miners caused lithium prices to slump between 2018 to 2020, according to Fastmarkets data.

The price of lithium hydroxide plummeted to $9 a kilogram by the end of December 2020, from $20.5/kg in January 2018. Lithium carbonate was priced at $6.75/kg on 30 December 2020, down from $19 in January 2018.

Prices started to rebound from early 2021 to first quarter of 2022, supported by strong growth of EV sales as countries recovered from the Covid-19 pandemic restrictions. The International Energy Agency (IEA) reported in May that EV sales doubled from 2021, setting a new record of 6.6 million units. The total number of electric vehicles on the road worldwide has tripled since 2018. 

By mid-February 2022, the spot price for lithium hydroxide CIF China, Japan, Korea rose above $51/kg, from $9 in January 2021. The spot price of lithium carbonate surged to above $57/kg in mi-February 2022 from $6.75/kg in early January 2021.

In the second quarter of 2022, lithium carbonate price in the Asia-Pacific market fell to $72,155/tonne or $72.15/kg, from $74,750/tonne in the previous quarter as China’s renewed Covid-19 lockdowns affected the raw material supply chain, according to chemical market and pricing intelligence firm Chemanalyst.

The Asia-Pacific lithium hydroxide price increased to $73,190/tonne in the second quarter, up from $68,900/tonne in the first quarter, according to Chemanalyst’s assessment.

Lithium futures: Price analysis

Prices rebounded in the third quarter on tight raw material supply and robust EV sales in China. The weekly LME-Fastmarket’s lithium futures prices rose to $80,000/tonne in the week of 13 October, from $78,000/tonne on 22 September. 

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According to Australia’s Department of Industry, Science and Resources September report, spot prices for lithium hydroxide (delivered to China) averaged $70,300/tonne in August 2022. 

The price was off the April peak of $74,688, but more than eight times the January 2021’s average price  of $7,984. The agency said: 

“Total supply from mine and brine operations is currently insufficient to meet demand. While new lithium projects are being developed, the supply gap will take time to close.”

The price of lithium carbonate also rallied following the Chinese Government’s decision to extend a tax exemption for purchase of new vehicles to the end of 2023. 

From January to September 2022, there were 3.71 million new-energy vehicles registered in China, rising 98.48% from the same period last year, according to the country’s Ministry of Public Security. By the end of September, China had a total of 11.49 million EVs operating on the roads. 

Lithium carbonate in China was traded at CNY 537,500 or $74,732 per tonne as of 17 October, according to data from economic provider Trading Economics. It has gained nearly 197% in one year.

 Lithium carbonate prices in China, in CNY per tonne

Lithium futures: Analysts views and forecast

As there is no benchmark lithium futures price, analysts only offer spot price predictions

As of 17 October, Trading Economics forecast the spot price for lithium carbonate in China to trade around $73,452.86/tonne by the end of this quarter and $76,195/tonne in 12 months’ time. 

In its September report, Australia’s Department of Industry, Science and Resources expected lithium hydroxide to peak at over $50,000/tonne in 2023, from an average of $38,575/tonne in 2022 and $17,370 a in 2021. The price was predicted to fall to average $37,600 in 2024.

Fitch Solutions’s lithium price forecast, as of 13 October, saw China’s lithium carbonate average $68,000/tonne in 2022, easing to $55,000/tonne in 2023.

Remember that lithium futures prices predictions can be wrong. Forecasts should not be used in place of your own research. Always conduct your own due diligence before trading, and never trade money you cannot afford to lose.

FAQs

Is there a futures market for lithium?

Lithium does not have a futures market. Yet in 2019 the London Metal Exchange (LME) in collaboration with Fastmarkets launched a new LME battery-grade hydroxide cash-settled futures contract.

Is it a good time to buy lithium stocks?

Whether it’s a good time to buy lithium stocks depends on your risk tolerance, trading goals, and portfolio composition. You should always conduct your own research. And never trade money you cannot afford to lose.

Will lithium prices go up?

As of 17 October, Trading Economics forecast prices of lithium carbonate in China to rise in 12 months’ time, but Fitch Solutions predictions of 13 October expected the price to ease. Meanwhile, in its September report, Australia’s Department of Industry, Science and Resources forecast lithium hydroxide price to peak over $50,000/tonne in 2023, before easing to $37,000/tonne level in 2024. Note that analyst predictions can be wrong. You should always conduct your own due diligence.

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You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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