The laws of supply and demand propose three dynamics that govern free markets. These three factors are (a) prices will rise when demand exceeds supply. However, (b) high prices will attract new suppliers to the market who take up the slack. And so (c) prices will fall again as the market returns to semi-equilibrium. Lithium battery metal markets were in under-supply during 2022, but why are prices falling now?
Tumbling Prices in Battery Metal Markets
Kalgoorlie Mining News serves an area rich in gold, nickel, lithium, and ore north-east of Perth in Australia. Lithium prices were rolling on a high in 2022, it recalls, with Elon Musk even calling them ‘insane’. A year-and-a-half later prices of commodities crucial to decarbonization have flipped the other way:
- Battery metal markets for lithium have tumbled 70% in 2023 according to Kalgoorlie Mining News.
- Nickel prices have dropped by 40% during this period. Cobalt prices are also significantly lower too.
Kalgoorlie Mining News cites Bloomberg explaining the drivers behind these two trends include demand for electric vehicles slowing. Plus China, Indonesia, and the Democratic Republic of the Congo have added their weight by increasing supply.
Are We In an Oversupply Situation Then?
“There’s certainly enough supply of all at present,” says Colin Hamilton from BMO Capital Markets. The managing director for commodities continues by noting, “Prices for the battery metals were too high to be sustainable, once supply expanded more rapidly than we expected”.
These following two factors illustrate the laws of supply and demand in action in battery metal markets.
- China recently completed a huge expansion of lithium battery capacity, resulting in a pull-back in battery production.
- In tandem, there’s also been an uptick in supply, after China expanded low-grade lithium mining production.
These factors do not bode well for electric vehicle expansion. Purchasers may hold back for better prices, or lose interest temporarily if prices suddenly bounce back.
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