Australia-based lithium producer Pilbara Minerals Ltd. accepted a record-high bid for its lithium during a digital auction in September. The lithium producer's Pilgangoora lithium project in Western Australia is pictured above in September 2020. Source: Pilbara Minerals Ltd.

Lithium prices have ascended to near-historic highs in recent months, as supplies for the white metal used in rechargeable batteries tighten and electric vehicle sales surge.

Prices for lithium products across multiple indexes have been gaining steam for months on the back of booming EV sales and strong market fundamentals, especially in China.

As of Sept. 16, the S&P Global Platts battery-grade lithium carbonate price was assessed at a record-breaking 170,000 yuan per tonne (US$26,372.94/t) on a delivered, duty-paid China basis, according to Platts.

Benchmark Mineral Intelligence's lithium carbonate CIF Asia price hit US$12,250/t in August, the highest price since May 2019, according to S&P Global Market Intelligence analyst Alice Yu.

Prices for lithium hydroxide have also rallied, with the lithium hydroxide EXW China price rising to an average of $21,150/t during the first two weeks of September, a year-to-date increase of 162.7%, according to Benchmark Mineral Intelligence.

Both lithium hydroxide and lithium carbonate are chemicals used in EV batteries, and both are becoming more expensive.

Automakers tend to use lithium hydroxide as a feedstock in long-range EV batteries, and to use lithium carbonate in batteries with less nickel content and lower energy density. Lithium hydroxide is a product that is often made from lithium carbonate, and the extra processing steps, among other factors, have typically made hydroxide more expensive than its sister chemical. Hydroxide can also be produced from spodumene, a lithium source extracted via hard-rock mining.

A lack of robust investment in new mining projects has exacerbated lithium's looming supply-demand imbalance and has also driven up prices, according to George Miller, a lithium analyst at Benchmark Mineral Intelligence.

"Throughout August and early September, the price rally for lithium chemicals and feedstock has been reignited on incredibly strong downstream demand, especially within the Chinese domestic market, which acts as a bellwether for the rest of the world's lithium market," Miller said.

Between 2018 and 2020, low lithium prices chilled funding for new mining projects, but global appetite for the metal started to heat up in 2020. Several countries mobilized to decarbonize their transportation sectors, encouraging EV sales and investment in lithium-ion battery production. EV adoption rates in China swung to new heights over the summer, shattering some forecasts.

In June, passenger plug-in EV sales in China totaled 241,000 units, breaking the previous record set in June 2019, and sales shot up another 6% to 256,000 units in July, according to Market Intelligence data. Lithium products are needed to make the lithium-ion batteries installed in EVs, along with a broad array of consumer electronics.

"Strong Chinese vehicle battery production growth and a new record for [plug-in EV] sales and penetration rates in August, coupled with a comparatively slow pace of lithium raw material supply increases — and a decline of seaborne lithium supply in August — all contributed to very strong lithium prices," Market Intelligence analyst Yu said in an email. Plug-in EVs include both battery EVs and plug-in hybrid EVs.

In addition to strong demand for EVs, lithium producers have also faced supply chain constraints amid the resurgence of COVID-19 cases globally, pushing up lithium product prices. A lithium shortage could surface by 2025, according to an Aug. 26 report by Market Intelligence.

Bullish outlook

Lithium prices are expected to continue climbing into next year, according to industry analysts.

"We expect 2022 lithium prices to remain around full-year 2021 levels, with the market surplus still among the lowest since 2018," according to Yu.

In a sign of the intensity of the demand, Australia-based lithium producer Pilbara Minerals Ltd. accepted a bid of $2,240 per dry metric tonne for 8,000 dmt of spodumene at a digital auction in September, according to a Sept. 14 company announcement.

"It's incredibly significant," Benchmark analyst Miller said of the auction results. "We've never seen prices like this before. The price speaks to tightening supply. It speaks to the desperation of spodumene converters within China."

It likely won't be the last time Pilbara Minerals, or other lithium producers, host an auction to find buyers and profit on unallocated lithium supplies.

"Given the strong margins yielded through the [Battery Material Exchange] trading platform to date, Pilbara Minerals expects to channel more concentrate sales through the platform, including concentrate generated from the recommencement of the Ngungaju processing plant," the company said in a statement. The Ngungaju facility is located in Western Australia.

Miller said that some of the additional cost for lithium products may be passed on to automakers or even consumers.

"Ultimately, however, the amount of cost that can be passed on to consumers is limited by the industry's impetus to shift EVs closer to price parity with internal combustion engine vehicles," Miller said.

As of Sept. 16, US$1 was equivalent to 6.46 Chinese yuan.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.