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Lithium Prices Stay Low Amid Supply Glut and Weak Demand

Lithium prices continue to decline due to oversupply and weak demand. Key industry adjustments, including a slowdown in production, may present opportunities for strategic investments in the sector. Analysts expect a sustained low-price environment into 2025.

Date: 
AI Rating:   4
Price Decline
Lithium carbonate prices have drastically dropped from US$13,160.20 per ton at the start of 2024 to US$10,254.16 by year's end, shedding 22%. This decline is resultant of ongoing oversupply issues, which are expected to persist into 2025. According to forecasts, average prices will further decrease.

Approximately 33,000 metric tons surplus is anticipated, indicating the demand-supply imbalance is not resolving quickly. The situation may lower profit margins and impact net income for lithium producers.

Production and Market Dynamics
The report highlights that the annual global mine supply surged to 180,000 metric tons in 2023, more than doubling since 2020, leading to market saturation. Moreover, the lithium extraction industry faces challenges due to emerging alternative battery technologies.

Despite some temporary price increases earlier in the year due to project delays, they did not lead to significant long-term changes in market conditions. Planned operational cutbacks may take 12 to 18 months to materially impact the oversupply situation.

Mergers and Acquisitions Activity
Amidst price challenges, M&A activity surged, highlighted by the merger between Livent and Allkem to form Arcadium Lithium, as well as Rio Tinto’s acquisition of Arcadium for US$6.7 billion. These moves characterize a transformative period, as major producers aim to consolidate resources amidst weak pricing.

EV Market Influence
The EV market significantly impacts lithium demand. Though sales initially dipped in North America, a resurgence towards the end of the year was noted, particularly in China. However, proposed political changes regarding EV incentives in the U.S. raise concerns about future sales and may hinder domestic manufacturers.

Overall, the continued oversupply and pricing pressure could lead to a diminished outlook for companies heavily reliant on lithium production, affecting their EPS and profit margins significantly.
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