Column: Goldman sparks a battle between bears and bulls in the lithium market

LONDON, June 15 (Reuters) – Is the red-hot lithium market about to descend into a cold cyclical rain of oversupply?

Goldman Sachs thinks so.

“We expect lithium prices to continue to correct through the rest of the year and remain under pressure from rising supply for years to come,” the Wall Street heavyweight argued in a May 29 battery metals research note. . (“The end of the beginning”).

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It’s a bold move, given supply chain stresses that have caused lithium carbonate spot prices to surge more than 900% since early 2021.

The backlash from lithium bulls has been fierce, with specialist consultancy Benchmark Mineral Intelligence (BMI) issuing a response on June 9 titled “Lithium oversupply? Not likely.”

The narrative around the electric vehicle battery enabler prospect is fiercely contested and will remain so for the foreseeable future.

However, the clash of bullish and bearish views has at least pinpointed some of the big “known unknowns” at work in the lithium supply chain.

Fastmarkets Spodumene and Lithium Carbonate Prices


A key variable is how long it takes for the new offer to reach the market.

All industrial metal mines take time to build capacity and teething problems are the norm, not the exception, as new equipment is installed and throughput rates are relaxed.

The lithium sector is no exception with a long history of over-promising and under-delivering in new supplies. BMI cites the example of Tianqi Lithium (002466.SZ) Australian hydroxide plant, originally scheduled to come online in 2018, but is only now producing its first lithium.

Even once in production, the new supply of lithium will not reach the market until it is certified, a process that typically takes between 6 and 18 months.

New copper mines can start shipping their concentrates almost immediately, knowing that although grades may be suboptimal, the copper is still recoverable through the smelting and refining process.

The specifications of the battery manufacturers for the lithium they will buy are so strict that any producer needs time to adjust the production to the customer’s requirements.

The extended timeline for mine development is “a structural issue” for lithium, according to Will Adams, head of battery metals research at Fastmarkets.

It can take up to 15 years to bring a mine into production, but you can build a gigabattery factory in just a year or two. That allows for repeated mismatches between supply and demand from the first user.

Another complication is the fractured nature of the production landscape.

Fitch Solutions analysts have identified 128 operations, both active and prospective, controlled by 103 individual companies, of which only 18 have more than two operations and 85 companies have only one.

“The lithium supply sector comprises a large number of exploration and junior companies,” meaning higher project execution risks, according to Fitch. (“Lithium Production Growth To Accelerate, But Supply Risks Abound”, Dec 20, 2021)


Intense competition for future supply and super-high prices have sparked a global search for new sources of lithium and new ways to process it into high-purity form.

This includes China, where investment flows into both traditional brine projects and lepidolite mining, a significant potential driver of supply growth, according to Goldman.

Lepidolite is a lithium-bearing mica mineral found in separate deposits as well as together with spodumene, the most common hard rock form of lithium.

There are already four lepidolite producers clustered around the city of Yichun in Jiangxi province, according to commodity research house CRU. (“Count the rise of lithium technologyMarch 11, 2022)

Yichun is also home to the world’s largest lepidolite mine, “mine 414”, with around 2.7 million tons of lithium carbonate equivalent reserves.

However, lepidolite deposits are low-grade, with few reaching more than 0.8% lithium oxide, meaning low yields and up to 25 tons of concentrate to produce one ton of lithium carbonate, according to CRU.

Processing is also difficult with high impurity content, which means high energy costs and significant amounts of waste products.

None of which stopped middle-of-the-road players like CATL and Gotion High Tech from signing supply deals based on lepidolite deposits in 2021, CRU noted.

It is clear that lepidolite is going to be part of the lithium supply equation, but what is not clear is to what extent and when.

The same applies to other new lithium supply routes being explored, such as geothermal brines Y direct pull processing.

Given the scale of demand from the transition to a low-carbon economy, coupled with generous government subsidies for new technologies in both the United States and Europe, it looks like future lithium production will come in many different forms.

They all have the potential to significantly alter supply dynamics, but the time from research to pilot plant to commercial production is nearly impossible to predict.

Lepidolite is just one of many “known unknowns” of new supply when it comes to lithium.


Lithium is still an immature market, albeit a rapidly evolving one, with multiple rotating parts in price.

Make “prices” plural.

Right now, the spot price of lithium carbonate is retreating from its March highs, but the price of lithium supplied under longer-term contracts continues to rise, according to Fastmarkets.

The spot market is dominated by Chinese players and therefore highly sensitive to local market conditions, most recently the impact on vehicle sales of continued lockdowns.

Industry specialists prefer to focus on the larger volume tonnages shipped from producer to consumer under long-term supply contracts.

The price of lithium has not yet been attracted to the world of currency trading despite the products on both the London Metal Exchange (LME) and the CME.

The absence of a clear price signal, in particular a futures reference price, adds to the unpredictability of lithium supply.

The smaller players in the sector already face financial hurdles. The lack of a hedging mechanism does not help to persuade potential investors.

Ironically, the split in prices means that both bulls and bears could be right in the short term, as a falling spot price and a falling long-term price converge.

However, it appears that the longer-term outlook will remain in question until some of the many supply uncertainties begin to resolve.

The views expressed here are those of the author, a Reuters columnist.

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Edited by Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and freedom from bias.

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