The lithium market is experiencing a period of oversupply, with prices significantly lower than their peak in late 2022. Despite this, many lithium mines, particularly those operated by Chinese companies, are maintaining production. This sustained output benefits battery manufacturers by ensuring a steady supply of raw materials at reduced costs. However, it also raises concerns about a prolonged period of oversupply and depressed prices.
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Sustained Lithium Output Amidst Market Oversupply
Despite a nearly 90% drop in lithium hydroxide prices since December 2022, numerous lithium mines continue production. This defiance of market signals stems from several factors. Some battery manufacturers have invested in mines to secure their supply chains, while others maintain production to retain market share and maintain relationships with governments. Additionally, the complexities of shutting down and restarting mining operations can pose technical challenges.
While a dozen lithium producers have curtailed production or delayed expansion plans, the overall supply glut persists. Industry experts predict this oversupply could last for several years, keeping lithium prices low. UBS forecasts a 25% increase in global lithium supply this year, followed by a 15% rise in 2025. According to Martin Jackson, head of battery raw materials at CRU, approximately 10% of current lithium production is operating at a loss.
China’s Strategic Interest in Lithium Production
Chinese-owned lithium mines, both domestically and internationally, are less likely to cease operations due to their integration into downstream supply chains. China’s government views the EV and battery sector as strategically important and aims to support its growth with consistent raw material access and low costs. This strategic focus contributes to the continued operation of even unprofitable mines.
The surge in expected EV sales and lithium prices in 2021 and 2022 spurred the development of new mines. Despite subsequent price declines, investment in lithium mining continued, increasing by 60% last year, according to the International Energy Agency. This sustained investment highlights the long-term focus on securing lithium resources.
Zimbabwe: A Case Study in Chinese Lithium Investment
Zimbabwe exemplifies China’s commitment to securing overseas lithium supplies. The country has rapidly become the world’s fourth-largest lithium producer, with all four operating mines majority-owned by Chinese companies. However, these mines operate with minimal profit or even losses, despite production costs significantly higher than current market prices.
According to Cameron Perks, a lithium expert at Benchmark Mineral Intelligence, these mines persist due to the ability of Chinese parent companies to absorb losses downstream and the political imperative for China to diversify its lithium sourcing beyond Australia and Canada.
Australian Lithium Mines Rely on Partnerships and Diversification
High-cost lithium mines in Australia also remain operational, often with support from battery manufacturers, adjusted mine plans, and profits from other mineral production like iron ore, copper, or nickel. For example, Mineral Resources continues operations at two mines, including the higher-cost Mt. Marion, partly due to a mining services contract with co-owner Ganfeng Lithium, a major Chinese battery manufacturer and lithium producer.
Liontown Resources, another Australian lithium miner, maintains production at its Kathleen Valley mine with scaled-back output and financial backing from South Korean battery maker LG Energy Solution. This partnership underscores the strategic alliances forming between miners and battery manufacturers to navigate the volatile lithium market. LGES benefited from lower lithium prices, reporting increased revenue in its advanced automotive battery division.
Conclusion: Oversupply Benefits Battery Makers, Uncertain Future for Miners
The persistent lithium production despite falling prices creates a favorable environment for battery manufacturers, providing ample supply at reduced costs. This dynamic fuels the growth of the electric vehicle and energy storage industries. However, the long-term sustainability of loss-making lithium mines remains uncertain. The continued oversupply suggests a prolonged period of low prices, posing challenges for miners who must adapt to survive in a competitive market.
