Lithium is all the rage. Then why is it constantly decreasing?
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This metal often stays in the shadow of gold, silver, aluminum, and other more heavy-traded assets. And in 2023, the gap is even wider, with lithium hitting a rock-bottom low last seen at the end of 2021. Why it’s happening, and where the shine of the metal has gone – it’s time to find answers.
First, let's take a look at the lithium futures chart. As you can see, the metal was at its highs throughout the previous year, soaring over 120% from January 1 to December 31, 2023. Gold and silver were left behind.
But in 2023, lithium lost its friends (sorry, that's just a nod to Nirvana's lyrics) and all its winning streaks. This year's chart illustrates continuous drops perfectly well.
Let's run back over why lithium became the hot topic. The main reason is lithium-ion batteries, found in electric vehicles, laptops, smartphones, and other electronic gadgets (if we consider vehicles as such). Smartphones and laptops have been around for years, but electric cars are just about to conquer the world. Therefore, the demand for lithium might increase in the next 3, 5, or 10 years – or in each of these periods.
2023 hasn’t been the most favorable environment for growth. The world crisis with skyrocketing prices has pushed people to reconsider their daily expenses rather than to splash the cash on a new (and probably their first) electric car. Industrial demand has decreased, but lithium production has only surged. New operations have sprung up in Bolivia, Argentina, Chile, China, Namibia, Zimbabwe, Germany, Russia.
In other words, the oversupply came well before the momentary demand. That’s why the lithium price has dropped from $85 to $29.
Nevertheless, most experts believe it’s not the end but a new start. Economic recovery and increased purchasing power will return sooner or later. Electric vehicles will more and more often substitute internal combustion engine autos. And there are even various deadlines regarding when lithium will be in deficit – some experts expect it as early as 2025, while others project it in 2030 and beyond.
Nobody knows when exactly the demand for lithium rebounds and prices resume their growth. The nearest positive driver is the expected reduction in the Fed's interest rates in 2024, but it’s unrelated to demand and is unlikely to be a huge catalyst. At the same time, nobody denies that lithium could become one of the most valuable resources in the near future.
It means that investors can discover trading opportunities in lithium futures and stocks of relevant companies. Just remember to conduct your own in-depth analysis before making any buying or selling decisions.