Why will the price of lithium collapse in 2024?

Amid a rapidly evolving global market, China's lithium sector is poised to take a significant hit in 2024, with price collapse prospects expected to reach more than 30%.
This decline is primarily fueled by an increase in supply from major global manufacturers, with significant consequences for the electric battery sector and automotive market dynamics.
One of the main reasons behind the price decline is the slowdown in demand for batteries, attributable in part to the Chinese government reducing subsidies for electric vehicles starting in January 2024.
This signal from Beijing has already generated uncertainty in the economic outlook globally, contributing to the slowdown in demand for electric vehicles.
Furthermore, the possibility of continuous increases in interest rates by global central banks has further influenced this trend, creating a climate of uncertainty that has negatively impacted demand.
The most traded lithium contract on the Guangzhou Futures Exchange in January hit a new low, reflecting the downtrend.
This price decline has a direct impact on high-cost lithium producers, who may find themselves in a difficult position in managing profit margins.
However, the electric vehicle sector, which represents a significant part of the Chinese market, could benefit from lower lithium prices, helping to reduce battery production costs.
In China, where around 70% of the world's batteries and more than half of electric vehicles are produced, this price drop could be welcome support at a time when the sector is facing challenges.
While domestic prices plummet, it is interesting to note that prices outside of China also follow a similar trend, highlighting the global impact of this changing scenario.
Jiangxi province, which accounts for a third of China's lithium production, is particularly affected.
Estimated production costs in this region are currently around 100,000 yuan per ton, but are expected to drop to 80,000 yuan in 2024.
This scenario could put a strain on local producers, especially those who depend on external ore supply, with costs that can reach up to 200,000 yuan per ton.
Global lithium supply is expected to increase 40% in 2024, UBS forecasts, reaching more than 1.4 million tonnes of lithium carbonate equivalent.
Australia and Latin America will see a 22% and 29% increase in production, while Africa is expected to double its production, driven by projects in Zimbabwe.
China will also contribute to this increase, with a forecast of 40% growth over the next two years, mainly thanks to a major CATL project in Jiangxi province.
However, the increase in supply predicts an overall surplus of 12%, compared to 4% the previous year.
This oversupply comes at a time when the energy storage sector is experiencing slower growth.
While the electric vehicle sector could benefit from lower lithium prices, slower growth in the energy storage sector could pose a challenge for some companies.
Overall, the expected collapse of lithium prices in China in 2024 is a complex phenomenon with diversified impacts on various sectors.
While the electric vehicle sector may enjoy lower production costs, high-cost lithium producers may face significant challenges.
At the same time, the global lithium market is undergoing a period of substantial change, with increasing supply potentially leading to a surplus and influencing the dynamics of related sectors.
It remains to be seen how the market will adapt to these new realities and what opportunities or challenges will arise for the different players in the industry.
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