The supply-demand dynamics in the lithium industry continue to evolve in diverse ways, unlike the typical trends one would expect in any other industry. The movements in oil supply offer a good comparison, where major producers generally scale back production to support prices. This week, China has limited battery capacity amidst the contrasting backdrop of a continued global push for lithium production in other nations.
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Lower Lithium Prices
The world of lithium, however, appears to operate on a different plane. Lithium carbonate prices plummeted from nearly 600,000 CNY/T in November 2022 to around 95,000 CNY/T at the beginning of 2024. Since then, prices have gradually crept back up to the current level of 110,500 CNY/T.
Demand Optimism Is Leading to More Capacity
Despite this price slump, hopes for a price rebound have prompted producers to steadily increase capacity. This week, Arcadium Lithium (NYSE:ALTM) reported a modest 3% increase in its top line and announced plans to bring additional capacity into production this year. The company aims to increase its total capacity to 170,000 LCEs by the end of 2026, more than four times its 2023 levels. While the company expressed optimism about improving demand trends, its net income for the quarter plummeted to $15.6 million from $114.8 million a year ago. This performance was impacted by higher cost of sales and restructuring charges.
In contrast, Albemarle (NYSE:ALB) recently noted that it could consider lowering capital outlays over the coming years if lithium prices stay flat. Albemarle is the largest lithium producer for EV batteries globally. Both ALB and ALTM are focusing on cost optimization to improve their performance.
China’s Moves
Meanwhile, China is looking to rein in its lithium battery industry amid concerns of overcapacity. The country is urging its lithium battery companies to skip projects that simply expand capacity and instead focus on improving product quality and lowering production costs. According to Bloomberg, China’s battery production capacity was nearly equivalent to the entire global demand last year.
How Much Is LIT?
Clearly, it may take some time before the supply-demand dynamics of lithium reach more favorable levels for both sides. Meanwhile, despite its recent price gains to $46.4, the Global Lithium & Battery Tech ETF (LIT) is still down nearly 24% over the past year.
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