Fits with Tesla’s big price cuts, aimed at internal-combustion-engine vehicles.
By Wolf Richter for WOLF STREET.
Lithium is no exception. The spot price of lithium carbonate 99.5% battery grade, trading in Shanghai and serving as a key benchmark, spiked by 590% in 16 months, and then collapsed spectacularly in four months. Over the last couple of days, it seems to have found a bottom. Like so many commodities, it didn’t collapse all the way back to the starting point of the price spike – at least not yet.
The price spike started in July 2021. At the time, it had been trading at 87,000 CNY per tonne. On November 11, 2022, it hit 600,000 CNY, a ridiculous gain of 590%. Then it lost its grip, speculation blew up, and the price plunged 72% in nearly a straight line, before ticking up for the first time.
A couple of days ago, the plunge stopped to take a breath at 165,000 CNY. And it ticked up from there. On Friday it closed at 177,500 CNY. While this is down 70% from the peak, it is still double the price of July 2021 (87,000 CNY).
For your amusement: The prior lithium bubble in 2017, when the price hit 175,000 CNY, also imploded spectacularly – but more slowly. Over the next three years, the price dropped 77% to 39,800 CNY by August 2020.
Commodities prices are not driven day-to-day by underlying long-term fundamentals but by huge speculation that can lead to absurd results, such as futures contracts for crude oil WTI plunging to minus $37.63 a barrel on April 20, 2020 before spiking back up, or lumber futures that spiked to ridiculous highs and then collapsed, or natural gas futures that spiked to ridiculous highs and then collapsed. Same with lithium.
But fundamentals are constantly cited to support, promote, and prolong a price spike like this. This was played out with immense hoopla in the media. There was going to be a global lithium shortage for years to come because EV production and sales were skyrocketing, and battery cell makers would run out of lithium and wouldn’t be able to supply battery cells to the EV makers.
And true, EV production and sales have skyrocketed, and continue to, creating rapidly growing demand for lithium, as Tesla’s big price cuts are aimed at grabbing market share from vehicles with internal-combustion engines. But what hasn’t happened is that the world ran out of lithium.
Commodities are in a dynamic world, full of actions and reactions, where high prices beget investment in production, which begets increased supply, which cures high prices.
All kinds of new lithium mines are being planned and are coming on line, and a lot of it has been in the works for a long time. And suddenly there’s talk of how a global lithium shortage turned into a global lithium glut over the course of four miraculous months.
But it also shows that price cuts by EV makers – driven relentlessly by Tesla which has the fattest profit margins of any major automaker and can afford to cut prices – are getting less onerous for them as the lower lithium prices filter into lower costs of battery cells.
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