Column: Goldman triggers a bear-bull battle in the lithium market: Andy Home

LONDON, June 15 (Reuters) – Is the white-hot lithium market about to be plunged into a cold, cyclical rain of excess supply?

Goldman Sachs thinks so.

“We expect lithium prices to continue to correct for the remainder of the year and remain under pressure from increased supply over the next few years,” the Wall Street heavyweight explained. in a May 29 Battery Metals Research Note. (“The end of the beginning”).

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That’s a bold call, given supply chain strains that have driven spot lithium carbonate prices more than 900% since the start of 2021.

The backlash from lithium bulls has been fierce, with industry consultancy Benchmark Mineral Intelligence (BMI) issuing a hitback on June 9 titled “Lithium Oversupply? Unlikely.”

The narrative around the prospects of the EV battery catalyst is fiercely contested and will remain so for the foreseeable future.

However, the clash of bull-bear views has at least identified some of the big “known unknowns” at work in the lithium supply chain.

Fastmarkets Lithium Carbonate and Spodumene Prices


A key variable is the time it takes for a new offering to reach the market.

All industrial metal mines take time to reach capacity, and start-up problems are the norm, not the exception, as new equipment is installed and throughput rates dip.

The lithium sector is no exception with a long history of over-promising and under-delivering new supplies. BMI cites the example of Australia’s Tianqi Lithium Hydroxide Plant (002466.SZ), which was originally scheduled to come online in 2018 but is only now producing its first lithium.

Even once in production, a new lithium supply will not hit the market until it has been certified, a process that typically takes 6 to 18 months.

New copper mines can begin shipping their concentrates almost immediately, knowing that although grades may be sub-optimal, the copper is still recoverable through the smelting-refining process.

Battery manufacturers’ specifications for the lithium they will purchase are so stringent that it takes time for any producer to adjust production to customer requirements.

The extended timeline for mine development is “a structural problem” for lithium, according to Will Adams, head of battery metals research at Fastmarkets.

It can take up to 15 years to bring a mine into production, but you can build a giga-battery factory in just one or two years. This allows for repeated mismatches between supply and early adopter demand.

Another complication is the fractured nature of the production landscape.

Fitch Solutions analysts identified 128 operations, active and prospective, controlled by 103 individual companies, of which only 18 have more than two operations and 85 companies have only one.

“The lithium supply industry includes a very large number of junior and exploration companies,” which means higher project execution risks, according to Fitch. (“Lithium Production Growth to Accelerate, but Supply Risks Abound,” Dec. 20, 2021)


Intense competition for future supply and skyrocketing prices have generated a worldwide search for new sources of lithium and new ways to turn it into a high-purity form.

That includes China, where investment is flowing both into traditional brine projects but also into lepidolite mining, a potential driver of supply growth, according to Goldman.

Lepidolite is a lithium-containing mica mineral found in free-standing deposits as well as alongside spodumene, the most common form of hard rock lithium.

There are already four lepidolite producers clustered around the city of Yichun in Jiangxi province, according to commodity research firm CRU. (“Scrutinizing the lithium technology boom,” March 11, 2022)

Yichun is also home to the world‘s largest lepidolite mine – the “414 mine” – with approximately 2.7 million tonnes of lithium carbonate equivalent reserves.

However, lepidolite deposits are low grade, with few reaching more than 0.8% lithium oxide, which means low yields and up to 25 tonnes of concentrate to produce one tonne of lithium carbonate, according to the BELIEVED.

Processing is also difficult with high impurities, which means high energy costs and large amounts of waste.

None of this has stopped downstream players such as CATL and Gotion High Tech from signing supply deals based on lepidolite deposits in 2021, CRU noted.

It’s clear that lepidolite is going to be part of the lithium supply equation, but what’s far from clear is how much and when.

The same is true for other new lithium supply routes being explored such as geothermal brines and direct mining processing.

Given the magnitude of demand resulting from the transition to a low-carbon economy, coupled with generous government subsidies for new technologies in the United States and Europe, future lithium production is expected to arrive in many different shapes.

All have the potential to dramatically change supply dynamics, but the time lag between research, pilot plant, and commercial production is nearly impossible to predict.

Lepidolite is just one of many “known unknowns” in the new lithium supply.


Lithium is still an immature, albeit rapidly evolving, market with several turning points in price.

Put this “price” in the plural.

Currently, the spot price of lithium carbonate is retreating from its March highs, but the price of lithium supplied under longer-term contracts continues to rise, according to Fastmarkets.

The spot market is dominated by Chinese players and therefore extremely sensitive to local market conditions, most recently to the hit to vehicle sales from the continued lockdowns.

Industry specialists prefer to focus on larger volumes shipped from producer to consumer under long-term supply contracts.

The price of lithium has yet to be drawn into the world of trading despite the products on both the London Metal Exchange (LME) and the CME.

The lack of a clear price signal, particularly a futures reference price, itself adds to the unpredictability of lithium supply.

Smaller players in the sector are already facing funding difficulties. The absence of a hedging mechanism does not help convince potential investors.

Ironically, the price split means that the bulls and bears could be right in the short term as a falling spot price and a lagging futures price converge.

The longer-term outlook, however, is likely to remain contested until some of the multiple supply uncertainties begin to be resolved.

The opinions expressed here are those of the author, columnist for Reuters.

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Editing by Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

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