Lithium Price Forecast For 2023
The lithium bull market is over.
A confluence of factors have catapulted lithium prices to record (and unsustainable) highs in 2022.
Soaring demand from EVs.
Supply limitations caused by long lead time mining expansions.
Refining bottlenecks to turn raw lithium into “battery grade” lithium.
All have played a part in lithium’s tremendous run-up over the last two years.
But it’s all about to change fast.
And if you’re a lithium investor, you may not be after you see what’s coming for lithium.
Same Story, Same Ending
You know how the lithium boom will likely end.
It’s a movie you’ve seen before.
That’s why we’ll start our prediction not with lithium, but with lumber.
Lumber saw a massive run-up early on in the pandemic that’s quite similar to what lithium is going through now.
Lumber supply was tightened because of the pandemic shutdowns.
Demand was steadily rising from the housing boom.
The two forces combined to send lumber prices to new all-time highs and beyond.
This is a 10-Year Lumber Price chart from Trading Economics shows just how crazy lumber prices were during the pandemic.
Lumber prices nearly tripled their past all-time highs.
Of course, it was a situation that couldn’t last.
And it didn’t.
Supply has caught up a bit. Demand has cooled off. And lumber prices are right back where they normally were before.
This happens all the time in commodities.
And we believe it’s about to happen to lithium for a number of reasons.
The Solution To High Prices: Lithium Edition
The foundation for the coming lithium bust is the boom that preceded it.
After all, before a crash, there usually should be a significant rise.
That’s definitely the case in lithium prices.
This Lithium Price Chart put together by Benchmark Mineral Intelligence shows a composite lithium prices going back to 2016:
Lithium was chugging along and then, bam, it just took off during the pandemic.
The index has easily risen five-fold from where it was before the pandemic began.
Every supply and demand factor was pushing lithium higher.
Rising demand from record-setting EV sales.
Supplies weren’t keeping up. Despite huge investments in new lithium mining projects, their production would take a couple years.
Goldman Sachs has put together some research on the supply/demand imbalance that drove the current run in lithium prices.
It’s featured in a research report titled titled Battery Metals Watch: The End Of The Beginning.
This chart from the report shows huge shortage in 2021 that stretched into 2022:
That kind of shortage in the early years is exactly what’s needed to send the price of a commodity up 500%.
But as we saw with lumber recently and every other commodity bubble in history, high prices rarely last.
And that’s why 2023 is set to be a super tough year for lithium prices.
The chart above shows how that huge deficit will have disappeared and actually turned into a sizable surplus.
This change alone is enough to put the brakes on the lithium price run.
But it’s just the start.
The chart shows that by 2024 the surplus will double again .
As you saw in 2020, a 12% shortage was enough to help drive prices up 500% over the next year...
A surplus even bigger than that shortage could easily do the inverse and send lithium prices cratering.
That’s a 75% potential crash in lithium price in 2022.
And given the amount of investment in increased lithium production and headwinds in the EV market, it’s a big crash, but certainly plausible.
Lithium stocks are at great risk.
This should be a warning to all investors.
