Goldman says lithium demand has fallen by less than half in China

Demand for lithium from China’s automotive industry has fallen by less than half in recent months, according to Goldman Sachs Group Inc (GS).

That implies a dramatic shift that will cause prices for the battery metal to fall, the bank says.

Goldman has been one of the most pessimistic voices in the later stages of the huge lithium rally in 2022.

Its projections of rising supply generated criticism from some of the industry’s experts.

However, now that prices have fallen more than 30% from their peak last year, the bank reiterated that the downturn has quite a bit further to go.

Since December, Chinese lithium demand has plummeted as the removal of electric vehicle subsidies, Covid-related disruptions, and the New Year holidays slowed activity at all stages of the auto industry supply chain, Aditi Rai analysts noted in an emailed note.

However, battery lithium production has remained firm, causing a growing mismatch between supply and demand, returning pricing power to consumers after an intense race for the material last year.

Although prices could receive temporary support from the reopening of the Chinese economy, a further increase in supply towards the end of the year will pressure lithium carbonate prices to US$34,000 a tonne over the next 12 months, according to the bank.

This is below the spot prices of US$61,850 a tonne quoted by Asian Metal Inc.

“We expect China’s lithium supply expansion to be larger and faster than consensus expectations,” the analysts wrote.

“While the recovery of electric vehicle sales in the second and third quarters of the year could temporarily improve the mood and put a brake on falling battery metal prices, the likely increase in supply and downstream overcapacity will drive lithium prices lower in the medium term.”

The fall in lithium prices accelerated over the past week after Reuters reported that CATL, the world’s largest battery maker, began offering discounts to Chinese electric vehicle makers and is negotiating with raw material suppliers to reduce its prices.

Shares of lithium miners and battery producers have also plunged, while analysts warn that the move could trigger a price war in the energy storage sector.

Although prices are about three times higher than the average recorded in 2021, the decline represents significant cost relief for automakers, adding to recent price declines for other battery metals, such as nickel and cobalt.

Even so, many bulls in the industry warn that more difficulties could arise if lithium suppliers fail to meet their ambitious production plans in full.

With information from Bloomberg

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