The lithium market, once riding the waves of surging demand from electric vehicles (EVs) and energy storage, has seen a more volatile period in the past year or two. Prices have softened (dramatically) after a period of sharp increases from 2020, with investors now asking a critical question: are we nearing the bottom of the cycle?
Recent M&A activity involving major players Rio Tinto and Arcadium, alongside speculation around potential deals involving SQM and Albemarle, suggest that confidence in the sector remains strong. However, external factors such as the Inflation Reduction Act (IRA), EU policies, and even the upcoming U.S. election could dramatically impact lithium’s trajectory in the near term.
Lithium’s demand is primarily driven by its essential role in Li-ion batteries, which has seen rapid growth over the past decade, particularly in the electric vehicle (EV) sector. Global EV sales continued to increase by more than 40% in 2023, fueling demand for lithium-ion batteries. Yet, despite this relatively high demand growth, it still lagged behind expectations as many pundits were forecasting a rapid take-up similar to what happened with smartphones ~15 years ago.
2023 saw supply growth tempered by delays in bringing new mines online and bottlenecks in refining capacity. Traditional lithium-producing regions like Chile and Australia have increased production but rising geopolitical tensions, logistical challenges and a softening lithium price have left many projects lagging. New lithium production projects in Africa and Latin America are still in the development phase and won’t contribute meaningfully to global production until 2025 or later.
Last month, a combination of low prices and higher costs saw Chinese giant CATL suspend lithium mining operations at the Jiangxi operations indicating that not even the Chinese are immune from price challenges. Fastmarkets believes that there is more high cost Chinese production that will need to come off before price rises will be sustainable.
With China dominating the downstream processing end of the supply chain, there is also believed to be an element of geopolitical influence in lithium pricing.
Over the past 12 months, lithium prices have experienced a rollercoaster ride. Following a peak in early 2023—where prices reached historically high levels due to aggressive stockpiling and heightened EV demand—prices began to correct sharply by mid-2023. Market oversupply fears, coupled with short-term demand dips in key markets like China, caused lithium carbonate and hydroxide prices to slide.
More recently, prices have started to stabilise. Lithium carbonate prices, for example, have rebounded by around 15% from their mid-2023 lows, however, they are still a long way below the earlier highs.
With prices still lower than the highs of 2022 and early 2023, some analysts believe we may be nearing the bottom of the lithium price cycle. In the context of M&A deals and consolidation, the current price environment might represent a “buy-low” moment for strategic investors.
One of the most significant signals of confidence in the lithium sector’s long-term potential is the recent wave of mergers and acquisitions. Most notably, Rio Tinto confirmed an agreed deal with Arcadium via a scheme of arrangement, which may mark a turning point. Rio Tinto, already a dominant player in the iron ore space, has been ramping up its exposure to lithium, and its acquisition of Arcadium is seen as a strategic move to secure additional resources for future growth.
Rio already owns the Rincon Project in Argentina, less than 60km from Arcadium’s operations, as well as the troubled Jadar Project in Serbia, which has been beset with community and political issues.
The deal, if approved by Arcadium shareholders, will position Rio Tinto as a major force in the global lithium supply chain, expanding its footprint in upstream extraction and downstream refining. Arcadium, known for its advanced lithium brine projects in South America, is expected to play a crucial role in helping Rio meet surging demand from EV manufacturers across North America and Europe. A combination of the two would be responsible for about 5% of global production.
At the same time, speculation is growing around two other major players: SQM and Albemarle. With the global race for lithium resources heating up, these two companies are seen as prime candidates for further consolidation. Recent rumours suggest that SQM, one of the world’s largest lithium producers, could be in talks with multiple potential acquirers, including strategic buyers from the energy and mining sectors. Meanwhile, Albemarle has been speculated to be exploring new acquisition targets, although no formal announcements have been made.
These moves suggest that the sector’s biggest players are positioning themselves for long-term dominance. In particular, M&A activity in the lithium space highlights growing confidence that current pricing levels represent a cyclical low, with significant growth on the horizon.
While market fundamentals and corporate strategies are crucial to understanding the lithium sector, geopolitical and regulatory factors will also shape the landscape in the coming years. Two key developments—the Inflation Reduction Act (IRA) in the U.S. and policy actions in the EU—are already influencing the direction of lithium investments.
The IRA, passed in 2022, includes provisions that offer tax credits and incentives to domestic producers of critical minerals, including lithium. These incentives are expected to spur domestic (and free trade agreement partner) production, reducing the U.S.’s reliance on foreign suppliers, particularly from China. This policy shift has not only prompted new project developments within the U.S., but it has also fuelled M&A activity as companies look to secure assets that can help meet growing domestic demand under favourable tax structures.
Looking ahead, the upcoming U.S. presidential election could add another layer of uncertainty to the lithium market. Depending on the outcome, the IRA could either be bolstered or weakened, influencing both domestic production capabilities and international trade dynamics. Democrats will be seeking to preserve and expand the IRA, whereas Republicans have signalled that the IRA will be repealed or watered down if they win in November.
Meanwhile, the EU has introduced its own set of measures aimed at securing critical mineral supplies. The EU’s focus has been on diversifying supply chains away from Chinese dependence, prompting European-based lithium companies to explore acquisitions and partnerships with projects in Africa and Latin America.
In the near term, the lithium market faces both opportunities and risks. On the one hand, lithium prices have stabilised after a sharp correction, and supply is gradually catching up to demand. On the other hand, macroeconomic uncertainty, geopolitical tensions, and technological developments (such as advances in battery chemistry) could influence lithium demand trajectories.
For investors, the next 1–3 years may offer significant upside potential, particularly for those with a long-term view of the energy transition. The combination of increased EV adoption, scaling energy storage solutions, and the expansion of global supply chains all point to a recovery in lithium prices and sustained demand growth.
Long term investors in the sector have seen the green shoots of a take off, only to see it fall again for no apparent reason. They have also seen it climb dramatically, once again, defying the supply-demand logic. Whilst this might well end up being the bottom, experts might hold off on calling it until the price climb has a firm period of upward growth behind it.
Photo by Kumpan Electric