Spodumene prices under pressure from slow demand, growing supply

Lithium prices climbed steeply through 2021-2022, despite macroeconomic headwinds and strict Covid lockdowns in China, as electric vehicle sales surged to take advantage of subsidies that were withdrawn end-2022. However, historically high prices began to depress demand as midstream and downstream consumer margins were squeezed, while EV sales tumbled in Q1 2023.

Platts DDP China lithium carbonate assessment recorded a near 75% drop from its November 2022 peak to Yuan 152,000/mt on April 17, its lowest to date in 2023.

While there is some optimism on improved demand heading into Q4, new supply ramp-ups continue to pose a challenge to lithium prices. Major hard rock projects like Sigma Lithium's Grota do Cirilo (Brazil), Sayona Mining's North American Lithium (Canada) and Core Lithium's Finniss (Australia) began commercial shipments this year, while Africa has emerged as an important player.

The Platts-assessed SC 6.0 spodumene stood at $2,650/mt on Sept. 22, falling 56% since the start of the year. Despite the drop in spodumene prices, the pace and magnitude of its decline has not outstripped that of lithium salts, resulting in little to negative margins for refiners and contributing to thin trade.

Headwinds for African lithium projects

African lithium resources is one of the most discussed topics in 2023, given its large estimated reserves and relatively undeveloped state. Where Zimbabwe's Bikita used to be the sole exporter of lithium ores at low utilization rates, the situation changed drastically this year with a flurry of investments in the region helping to drive major projects to commercial production in the near term, including Huayou Cobalt's Arcadia and Premier African Minerals' Zulu projects.

However, the road ahead is not a smooth one. Aside from environmental and social repercussions such as waste management, artisanal mining practices and displacement of local communities, policies relating to resource nationalism could tighten material outflows or discourage much-needed investment for exploring new resources. Zimbabwe, for one, banned the export of lithium ores in December 2022, while Namibia banned the export of unprocessed minerals in June 2023. Funding and infrastructure support are also required for nations seeking to move further downstream to extract more value from their resources.

Market participants have called for more to be done in overcoming the challenges to unlock Africa's full potential. S&P Global Market Intelligence data showed that Africa could be the third-largest producing region by 2027, surpassing North America and China, relying on world-class deposits like Leo Lithium's Goulamina and AVZ Minerals' Manono. Given that the lithium market is expected to slip back into deficit in 2027, it is all the more critical to focus on ongoing and potential challenges to ensure projects stay on track.

Competition for Africa’s resources as opportunities grow

S&P Global Market Intelligence expected supply from the continent to increase more than 24-fold between 2022 and 2027, from just over 11,600 mt of lithium carbonate equivalent (2% of global supply) to over 275,000 mt of LCE (12% of global supply).

Chinese companies are ahead in terms of securing lithium resources from Africa. Of the seven lithium assets in Africa that S&P Global expects to be in production by 2027, five of these assets have at least 50% equity ownership by Chinese companies whose operating methods such as using their own construction teams is advantageous in bringing on mining assets and auxiliary infrastructure.

The surge in mergers and acquisitions interest in African lithium assets from Chinese capital has been a phenomenon since 2021. The largest 2022 deals in value included Zhejiang Huayou Cobalt’s stake in Arcadia, and Suzhou CATH’s acquisition of shares in Manono. Prior to 2021, some of the largest deals by Chinese companies were for resources in Chile and Canada, while the largest deal in Africa were from Australian buyers.

Increasingly, both Europe and the US are looking at Africa as a source of critical mineral supply but have so far made limited headways. It will take time to establish flows as Africa is not yet a key supplier into the EV supply chains in these markets and greater scrutiny will be required for more countries in Africa to be considered trade-deal friendly and to prove themselves as a low carbon origin of supply.

Africa has significant potential to add greater value by integrating downstream in the battery-supply chain, benefitting from resource endowment and proximity to demand centers across both Europe and North America. LG Chem and Huayou cobalt are looking to build a lithium refinery in Morocco, a free trade partner of the US which count towards the critical mineral sourcing eligibility for the US EV tax credit. The joint venture, along with a separate collaboration between CNGR and Al Mada, are both hoping to build cathode material plants in Morocco to benefit from proximity to Western markets, and the potential for faster time-to-commissioning.

^{Credits:
Infographic developers: Jesline Tang, Leah Chen, Alice Yu, Mark Ferguson, Louissa Liao, Zuyu Tian
Text authors: Jesline Tang, Leah Chen, Alice Yu}