Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Lithium Is the New Battleground in Commodity Markets
Transcript
- Lucas: Let's start with a number that jumped off the screen this morning: corn futures up 8.9 percent in five days. That's a massive move for a grain. Luna: Right, and wheat is up 4.3 percent, soybeans up 2 percent. But I'm looking at something else entirely—lithium. Lucas: Lithium is fascinating right now because it's doing the opposite of what most people expect. In 2023, lithium carbonate prices hit the equivalent of about $80,000 per metric ton in China. Today? They're hovering around $12,000. That's an 85 percent collapse. Luna: And yet, demand for EVs isn't falling. Global EV sales were up 22 percent year-over-year in the first half of 2026. So why is lithium crashing? Lucas: Supply. Specifically, massive supply from Australia and Chile came online much faster than anyone modeled. You had Albemarle and Livent—the two biggest us based lithium producers—complete their merger in late 2025, and the combined entity immediately signaled they would not cut production to support prices. Luna: That's unusual. Normally when a commodity price drops 80 percent, producers cut output. But they doubled down. Why? Lucas: Because they're playing a longer game. The Albemarle-Livent merger created a company that controls roughly 30 percent of global lithium supply outside of China. Their strategy seems to be: flood the market, crush higher-cost producers—especially Chinese brine operations in Tibet and low-grade Australian spodumene mines—and then consolidate once the survivors are gone. Luna: So it's a predatory pricing play, classic commodities ruthlessness. Lucas: Exactly. And it's working. Just last week, Core Lithium, an Australian miner that was one of the darlings of the 2021 lithium boom, announced it's idling half its processing capacity. Their breakeven is around $18 per kilogram. Spot is at $12. Luna: But here's the twist: while lithium carbonate is in the dumps, lithium hydroxide—which is preferred for high-nickel battery chemistries—is holding up better. Only down about 60 percent from peak. That's a signal about where technology is heading. Lucas: Great point. And it gets more interesting when you look at what's happening in Washington. The Pentagon just issued a report last month on critical mineral supply chains, and lithium is at the top of the list. The US has exactly one operating lithium mine—Silver Peak in Nevada, run by Albemarle. That's it. Luna: Meanwhile, China controls over 60 percent of lithium refining capacity globally. So when you hear about the Inflation Reduction Act subsidies for domestic battery production, the bottleneck isn't building the factories—it's where the lithium comes from. Lucas: Which brings us to the price floor question. Most analysts think $10 to $12 per kilogram is the long-term floor, because below that, even the best mines in Chile and Western Australia lose money. But the market is testing that right now. Luna: I saw a note from Goldman Sachs this morning saying they expect lithium to average $15 per kilogram in 2027, but they also said 'significant downside risk remains' if Chinese demand slows. Lucas: And that's the wildcard. China's economy is slowing—you see it in the copper price, which is actually up this week but still well off its May highs. If Chinese EV sales plateau, lithium could stay low for years. Luna: But if we get a supply shock—like a disruption at a major Chilean operation, or new export controls from China—prices could spike 50 percent in a month. Lucas: That's the nature of small, concentrated commodity markets. Lithium is still a niche market compared to copper or oil. Total global production is about 1.3 million metric tons of lithium carbonate equivalent per year. That's less than one percent of the oil market by value. Luna: So just a tiny shift in supply or demand causes outsized moves. Lucas: Right. And speaking of shifts—if walking through the economy with us has made something click about how these markets work, we wanted to mention that this show is ad-free and listener-supported. People who find it valuable sometimes throw a few dollars our way at buy me a coffee dot com slash fexingo. No pressure, just if it's useful to you. Luna: Yeah, it helps us keep digging into these stories without chasing advertisers. Appreciate everyone who's done that. Lucas: Alright, back to lithium. There's one more layer I want to get into: the strategic stockpiling angle. The US Department of Energy just announced a $100 million loan to a startup called EnergyX to build a direct lithium extraction pilot in Utah. Luna: Direct lithium extraction—DLE—is the holy grail. Instead of evaporating brine in huge ponds for 18 months, you filter lithium out in hours. If it works at scale, it changes the entire supply picture. Lucas: But it's still unproven at commercial scale. The biggest DLE project so far is in Argentina, operated by a Chinese company, and it's producing about 10,000 tons per year—a drop in the bucket. Luna: So we're in this strange moment where the technology to produce lithium cheaply exists, but the political will to build domestic capacity is only just emerging, and the incumbent producers are perfectly happy to keep prices low to kill off competition. Lucas: That's the story. And it's why lithium is probably the most interesting commodity to watch in the second half of 2026. More volatile than oil, more strategic than copper, and completely misunderstood by most investors. Luna: One last data point: the five-day performance of lithium stocks via the LIT ETF is up about 3 percent. So the market is starting to price in a bottom, even as the physical commodity keeps falling. Lucas: Which sets up a classic divergence. Are the stock buyers early, or is the commodity going lower? We'll find out in the next few months.