Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Lithium Prices Are Crashing Despite EV Growth
Transcript
- Lucas: So lithium carbonate prices are down about 72 percent from the November 2022 peak. That's not a typo. We're seeing spot prices around 11,000 dollars a metric ton, which is basically where they were back in early 2021 before the parabolic run. Luna: And yet every week there's another headline about EV sales hitting records. That's the part I can't square. How do you have demand growing and the core input price collapsing? Lucas: Right, and that's exactly the question. The conventional narrative was that lithium was a structural deficit story — that we'd never have enough to electrify the global fleet. But what happened is that high prices did what high prices always do: they incentivised a ton of new supply. Australian spodumene mines, Chilean brine operations, even new projects in Argentina and China. The problem is that these projects have long lead times — two to five years — so a lot of supply that was greenlit in 2021 and 2022 is only now coming online. Luna: So we're looking at a classic commodity overshoot? The price goes up, everybody rushes to build, and then all that supply hits the market at once? Lucas: Pretty much textbook. But there's a twist. Unlike copper or oil, lithium doesn't have a single benchmark price that everyone uses. There's spot, there's quarterly contract prices, there's index-linked deals. A lot of the big buyers — like CATL or LG Energy Solution — negotiated long-term supply agreements back when prices were high, so they're actually paying above spot in some cases. That's created this weird two-tier market. Luna: And that's why some lithium miners are still reporting positive margins, even though spot looks awful. Lucas: Exactly. Albemarle, which is the largest lithium producer in the world, reported first quarter 2026 earnings and their average realised price was still above 15,000 a ton because of those contracts. But the spot market is telling a different story. And the spot market is where the marginal cost curve sits. If spot stays below 12,000 for another year, you'll start seeing higher-cost producers shut down. Luna: So who's at risk? I know Australia has a lot of hard-rock mines with higher extraction costs than the South American brine operations. Lucas: Yeah, the brine operations in Chile and Argentina can produce lithium carbonate for somewhere between 4,000 and 7,000 dollars a ton. The Australian spodumene mines — especially the newer, lower-grade ones — probably need prices above 10,000 to break even. We've already seen some Chinese converters cut production, but the big swing factor is what happens in Chile. SQM and Albemarle both have massive expansion plans there, and they're not slowing down. In fact, SQM just announced they're adding another 50,000 tons of capacity by 2027. Luna: So the largest, lowest-cost producers are actually pushing more supply into a glut? That seems like a recipe for a prolonged downturn. Lucas: It is, unless demand accelerates much faster than anyone expects. And look, EV sales are growing — globally about 25 percent year-over-year in the first quarter of 2026. But the growth rate is slowing from the 60-plus percent we saw in 2022. And the average battery size is actually shrinking in some segments because of cost pressures. So the lithium intensity per vehicle isn't rising as fast as the volume growth. Luna: That's a really important nuance. We talk about EV adoption as this monolithic thing, but the chemistry is shifting too. I've seen data that LFP batteries — which don't use lithium as efficiently — are gaining share in the China market, while nickel-rich NMC is losing ground. That actually reduces per-vehicle lithium demand in some cases. Lucas: Right, LFP is actually less lithium-intensive per kilowatt-hour than NMC, which is the opposite of what a lot of people assume. So if the market keeps tilting toward LFP — and it is, especially for lower-range EVs — then the demand curve for lithium gets flatter. Combine that with new supply coming from Chile, Australia, and potentially even from direct lithium extraction projects in the US, and you can see why the price isn't bouncing. Lucas: You know, one thing that strikes me about this whole commodity cycle is how similar it feels to previous booms and busts, but with a twist. People forget that in 2018, lithium prices also crashed — they went from about 25,000 a ton down to 8,000. Then the EV narrative took off, prices spiked, and now we're back in the trough. The lesson might be that lithium is not actually a scarce resource geologically; it's a timing and investment cycle story. Luna: Which is useful context because there's a lot of hand-wringing about critical mineral security. But if the market drives prices down to where only the most efficient survive, doesn't that actually make the supply chain more resilient in the long run? Lucas: It's a double-edged sword. On one hand, low prices encourage adoption and make EVs cheaper. On the other hand, if prices stay below the marginal cost of new projects for too long, investment dries up, and then you create the conditions for the next big price spike. The risk is that policymakers — especially in the US and Europe — see low lithium prices and decide they don't need to fund domestic production. Then in five years, everyone's scrambling again. Luna: That's the classic resource curse in reverse, isn't it? The moment you think you have enough, you stop investing, and then you don't. Lucas: Exactly. And we're already seeing that play out in financing data. Venture capital into lithium startups fell 60 percent in 2025 versus 2023. The big mining companies are still spending, but the junior explorers — the ones that discover new deposits — are finding it really hard to raise money at these prices. Luna: It feels like walking through the economy with us sometimes means hearing the same patterns over and over. And honestly, that's partly why we do this show without any ads — because we want to be able to say 'this is a classic overshoot' without anyone wondering whose product we're selling. If you find that useful, the simplest way to support it is buy me a coffee dot com slash fexingo. Lucas: Yeah, I think that's a big part of why we keep the show independent. No sponsors, no pressure to frame things a certain way. So thanks to anyone who chips in — it genuinely helps keep the lights on. Luna: Alright, back to the metals. Lucas, you mentioned cobalt and nickel earlier — are they following the same pattern as lithium? Lucas: Not exactly. Cobalt is actually in a deeper structural crisis because of the shift to LFP batteries, which use zero cobalt. So cobalt demand from batteries is actually declining in absolute terms. That's a much scarier picture for producers in the DRC. Nickel is more interesting because it's caught between two markets: stainless steel, which is steady, and batteries, which are growing but shifting toward lower-nickel chemistries. So nickel prices are down about 30 percent from 2022 highs, but they're not crashing the way lithium is. Luna: So the battery metals complex is actually decoupling. Lithium and cobalt are having very different cycles, and nickel is somewhere in between. Lucas: That's the right framework. And graphite — which is also critical for anodes — is going through its own supply glut driven by Chinese overcapacity. So if you're an investor looking at the whole battery supply chain, you can't just say 'EVs are growing, so all metals go up.' The chemistry shifts, the cost curves, and the politics of each metal are totally different. Luna: And the politics part is huge. We're recording this on May 27, 2026, and just today there's news about the US and Iran talks, which is moving oil. But for lithium, the political story is about Chile's new royalty regime and whether Australia's new government will fast-track mining permits. Those are the local factors that dictate supply, not just global demand. Lucas: Right. Chile passed a new mining royalty law last year that increases taxes on lithium producers, and that's already affecting investment decisions. Albemarle has paused a planned expansion in Chile while they negotiate the terms. Meanwhile, Australia is trying to position itself as a more geopolitically reliable source, but their costs are higher. So the geography of lithium supply is shifting in real time. Luna: And we haven't even talked about the US Inflation Reduction Act and its domestic sourcing requirements. That's creating demand for lithium from North American sources, but there's almost no domestic production yet. So you have this tension between policy goals and market reality. Lucas: That tension is the whole commodity story for the next decade, I think. Governments want supply chains that are secure and ethical. Markets want supply that's cheap and abundant. Those two things don't always align. Lithium is just the clearest example right now because the price signal is so loud. Luna: So where does that leave us? Are we near a bottom, or is there more pain ahead for lithium miners? Lucas: I think it depends on which time horizon you use. In the next six months, we could see spot prices fall another 10 to 20 percent if the Chinese economy doesn't pick up. But if you look at the long-term demand forecasts for 2030 — even conservative ones — the world is going to need roughly double the current lithium supply. So a lot of the projects that are struggling today will be necessary later. The question is whether the industry can survive the valley to get to the other side. Luna: That's the commodity cycle in a nutshell. Pain now, promise later. And the only way to know who gets through it is to watch the cost curve. Lucas: Exactly. The ones with the lowest costs, the strongest balance sheets, and the most flexible contracts will survive. Everyone else is counting on a price recovery that may not come for a while.