Lithium oversupply or undersupply is coming...
@Epstein Research · · 5 upvotes · 0 replies
Lithium and spodumene concentrate ("spod con") prices are down over the past two weeks due to fears of new and restarted operations coming online in the coming months. Yes, lithium supply (carbonate/hydroxide) is rising, but not rapidly enough to create a meaningful glut in my view. New production and restarts (Australia, China, Africa/Zimbabwe) will add meaningful supply, yet forecasts show growth of 10-15% YoY).
Meanwhile, very strong BESS demand (projected at 50%+ growth YoY) should soak up increased supply. However, headlines matter a lot for Li/spod con prices and Li equities. CATL is supposed to be bringing back online a large lepidolite operation in China, but within the past 24 hours it was announced that's not happening for (at least) a few more months.
In other news, mining costs, most notably fuel, are rising due to the Middle East crisis. Will higher costs support stronger Li/spodumene prices going forward? That's an open question. Also tied to the Middle East, higher gasoline/diesel prices have clearly boosted EV sales. Pulling forward EV sales is important as once one switches from a conventional gas powered car to an EV, one typically (vast majority of time) remains an EV buyer going forward.
For now, spod con at US$2,541/tonne, down from nearly $2,900/t in mid-May is still a good price, especially compared to the lows of last Summer. Spod con has tripled since July 1st 2025. But, investors in Li juniors like Frontier Lithium, Li-FT Power, Q2 Metals, not to mention current producers such as Albemarle & SQM are watching the headlines closely.
A key headline to watch for, in addition to CATL restart plans referred to above, is Zimbabwe's export of spod con. In February 2026 it banned exports in order to try to capture more of the economics in country. That has been a driver of higher spod con prices, but Zimbabwe could start exporting spod con again at any time. No material update on that issue this month that I could find.
Bottom line... I'm bullish on Li juniors, especially names like Frontier Lithium & Nevada Lithium Resources that have not already soared 100s of percent. As consumption of lithium carbonate equiv. ("LCE") continues to grow, soon to pass 2.0M tonnes/yr., and probably > 3.5M tonnes in 2030 or 2031, supply additions become harder to move the needle. New mines over the past 20 years have delivered 20-30k tonnes of LCE/yr. New mines in the coming decade need to be a lot bigger than that... But they're not. Why? Funding.
It's hard enough to raise investment capital for 20k-30k tonnes LCE, very few even trying to build 30K+ tonne operations. Of those that do, like Lithium Americas' clay-hosted Li project in Nevada, the plan is to ramp up in stages, adding years to the entry of the Li units. Supply shocks from Africa & China that crushed the market when it was 1.0M tonnes LCE will have far less power to do so at 2.0-3.5M tonnes LCE.