The decrease in lithium prices has begun following the recent agreement between the European Union and China, which leads to a reduction in Chinese hybrid vehicle exports to this bloc. Since the beginning of this week, lithium futures, which have the highest trading volume in China, have dropped by 14 percent.
Reasons for Decreased Demand for Lithium
The oil crisis resulting from the war in the Middle East has raised hopes for increased demand for batteries, as drivers shift from gasoline and diesel vehicles to electric ones. However, the EU officials' supportive measures against Chinese vehicle imports have weakened the outlook for battery demand and, consequently, lithium. Analysts at Oriental Securities stated in a note: "Market participants are uncertain about the outlook for lithium demand... While this agreement seems better than previous expectations of tariff increases, it means that China's export growth to the EU will decline."
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Trends in Lithium Prices This Year
The decrease in lithium prices began earlier this year, reaching nearly 210,000 yuan per ton for lithium futures in May. Since then, increased production and political developments have put pressure on prices, and traders are concerned about oversupply. Today, the futures price temporarily fell below 100,000 yuan, indicating growing concerns about demand.
However, lithium producers have reported significant profits in the first half of this year, driven by strong demand for battery storage due to the war in the Middle East. Battery storage for power grids that heavily rely on wind and solar production has gained more importance. Since production from these sources is not always aligned with electricity demand, batteries can store excess electricity and release it when needed. As countries dependent on oil and gas imports from the Middle East turn to alternatives, the importance of battery storage has significantly increased since March.
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