Lithium price drops to lowest level since August 2021 but should you care?

The lithium carbonate price just dropped to US$15,000 per tonne — that's an 80% fall in 2023 alone.

A young man in a blue suit sits on his desk cross-legged with his phone in his hand looking slightly crazed.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The lithium carbonate spot price just dropped to its lowest level since August 2021 at US$15,182 per tonne (p/t) amid low Chinese demand and increased global supply.

This represents an almost 80% fall in the carbonate price in 2023 alone.

Unsurprisingly, this has dragged down the value of ASX 200 lithium shares over this period:

  • Core Lithium Ltd (ASX: CXO) shares are down 76%
  • IGO Ltd (ASX: IGO) shares are down 42%
  • Allkem Ltd (ASX: AKE) shares are down 23%
  • Mineral Resources Ltd (ASX: MIN) shares are down 22%
  • Pilbara Minerals Ltd (ASX: PLS) shares are down 7.5%

What's happening with lithium prices?

We've got a significant supply and demand situation right now, and it seems to be getting worse.

Top broker Goldman Sachs has put out a note lowering its 12-month forecast for lithium prices again.

The broker was tipping US$15,000 p/t for lithium carbonate but is now forecasting US$11,000 p/t.

It was also predicting US$16,500 p/t for lithium hydroxide and has reduced that to US$12,000 p/t.

As my Fool colleague James reports, Goldman reckons lithium prices won't bottom til 2025.

Fresh analysis from Trading Economics points to pessimism about electric vehicle (EV) sales in China — the world's biggest producer of EVs — as the key catalyst for continually falling lithium prices.

Trading Economics analysts explain:

EV sales pessimism in China limited lithium demand for battery manufacturers in their typical restocking season. Instead, firms took advantage of high inventories following the supply glut caused by extensive subsidies from the Chinese government throughout 2021 and 2022.

The developments drove key market players to forecast the next lithium deficit to return only in 2028 …

Elsewhere, the EV sales in the US have missed expectations as higher credit costs hampered consumers' willingness to make large purchases. Meanwhile, output is set to remain robust.

Reuters reports that CITIC Futures forecasts domestic EV sales in China to grow by 25% to 9.44 million units next year, slowing from annual growth of 31% and 89% in 2023 and 2022, respectively.

On top of that, a slower growth rate is also projected for the energy storage sector, which is the second-biggest consumer of lithium, because of softening demand, CITIC says.

Should you care?

The dramatic fall in lithium prices this year, coupled with bearish forecasts for 2024, makes for depressing reading. But the question is, should short-term lithium price issues influence our investment decisions?

The falling commodities values don't seem to be influencing the investment decisions of the biggest brains in Australian mining, not to mention some of the biggest lithium companies in the world.

In 2023, amid crashing lithium prices, they've all been vying for a bigger share of the Australian lithium pie.

Here are some examples.

MinRes boss Chris Ellison recently took a 17.44% stake in Delta Lithium Ltd (ASX: DLI) and is now the board's non-executive chair. Hancock Prospecting boss Gina Rinehart is also a major shareholder.

Ellison also bought nearly a fifth of Wildcat Resources Ltd (ASX: WC8) last month.

Rinehart raided Liontown Resources Limited (ASX: LTR) and built a 19.9% stake in October while US takeover suitor Albemarle Corporation (NYSE: ALB) did its due diligence. That deal then fell over.

Rinehart and Ellison have both been buying Azure Minerals Ltd (ASX: AZS) shares after the junior miner accepted a $3.52 per share takeover from Chilean lithium giant Sociedad Quimica y Minr de Chile SA (NYSE: SQM). Ellison now reckons the SQM takeover is "dead in the water".

Meantime, the proposed merger of Allkem and Livent Corp (NYSE: LTHM) is moving full-steam ahead.

Clearly, these giants of the lithium industry are thinking long-term.

It begs the question as to whether we ordinary ASX investors should be doing the same and ignoring the current white noise on lithium prices.

In fact, maybe we should welcome it.

It's driving ASX lithium share prices down, and perhaps that will give us a phenomenal one-off opportunity to buy the dip at some stage in a mining sector with a very bright future.

The decarbonisation investment theme has decades to run, with lithium batteries set to play a monstrous role in the green energy transition.

Should you invest $1,000 in Allkem right now?

Before you buy Allkem shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Allkem wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 7 February 2025

Motley Fool contributor Bronwyn Allen has positions in Core Lithium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

Miner looking at a tablet.
Resources Shares

6 popular ASX 200 mining shares reporting next week

Next week is major with some of Australia's most important companies reporting results to the market.

Read more »

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.
Materials Shares

Do you own Rio Tinto shares? Here's your FY24 results preview

How big will the Rio Tinto dividend be in FY 2024?

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Materials Shares

Own Pilbara Minerals shares? Here's what to watch in next week's update

What will the lithium giant report next week? Let's find out.

Read more »

Image of young successful engineer, with blueprints, notepad and digital tablet, observing the project implementation on construction site and in mine.
Materials Shares

Buying BHP shares? Here's your half year results preview

The Big Australian is releasing its half year results next week. Here's what to expect.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Materials Shares

Pilbara Minerals shares charge higher on 'game-changer' news

This lithium giant is catching the eye of investors on Thursday. But why?

Read more »

A man raises his reading glasses in a look of surprise.
Earnings Results

South32 share price higher on 577% profit jump

This mining giant's profits have surged during the first half.

Read more »

Business people discussing project on digital tablet.
Materials Shares

Own BHP shares? Here's some big news

Let's see what the Big Australian has announced to the market.

Read more »

A female broker in a red jacket whispers in the ear of a man who has a surprised look on his face as she explains which two ASX 200 shares should do well in today's volatile climate
Materials Shares

Should you buy Pilbara Minerals shares in February?

What are analysts at Bell Potter saying about this lithium giant.

Read more »