Bank of America sees lithium surplus in 2023 as demand eases

Salt evaporation ponds seen on Bristol Dry Lake where Standard Lithium Ltd. is preparing to use Direct Lithium Extraction (DLE) technology to capture lithium from brine on November 30, 2022 near Amboy, California

David Mcnew | Getty Images News | Getty Images

There could be a surplus of lithium in 2023 as higher supply volumes are set to supersede slowing demand for the metal, said Bank of America Securities’ head of Asia Pacific basic materials, Matty Zhao.

“We see a lot of supply coming out from lithium mines … We are expecting 38% lithium supply growth this year. That’s why 2023 is likely to turn into a surplus year for lithium,” Zhao told CNBC.

She also said she expects China’s electric vehicle demand growth to slow from 95% last year to 22% this year. Lithium is a key component of EV batteries, which Zhao said is becoming an increasingly competitive industry.

Since 2021, elevated lithium prices have incentivized adding new supply streams, such as Pilbara Minerals’ Ngungaju Plant in Pilgangoora, Albermarle’s Wodgina mine and Tianqi Lithium’s Greenbushes mine, according to Zhao.

“Meanwhile, existing capacities like Sociedad Química y Minera’s Salar de Atacama, Mineral Resources’ Mt. Marion are expanding aggressively as well,” she said.

In the two years ending December 2021, lithium carbonate spot prices rose 5% to stand at 277,500 yuan per ton. But subsequently surged to a record high of almost 600,000 yuan per ton in November 2022, more than 12 times January 2021 prices.

In May last year, Goldman Sachs forecast lithium supply to grow on average 33% annually between 2022 and 2025.

“We expect Chinese lithium project expansions to multiply rapidly, in particular integrated hard rock projects, just as ex-China spodumene supply continues to strengthen,” the bank’s analysts wrote. The firm also said accelerating EV sales and stationary storage installations will also contribute to demand.

While Zhao still sees EV demand growing 20% globally, she said it’ll be slightly slower than last year’s pace.

“One of the reasons we expect EV growth to be slower this year [is] because last year was a very high base,” she said.

She expects lithium prices in China to average around 400,000 yuan per ton, before dropping to between 350,000 yuan to 400,000 yuan in the near term.

Lithium carbonate prices have recently been trading around 382,500 yuan per ton.