Lithium prices plummeted more than 80% in 2023 after a record-breaking 2022 in which prices reached all-time highs. Some of the reasons behind the collapse in lithium prices last year include an increased short-term supply of lithium, a notable slowdown in electric vehicle sales in China due to the temporary removal of EV subsidies and growing concerns regarding the possibility of a global economic recession.
EV sales, which directly have an impact on lithium prices, may continue to face challenges this year. However, it would be naïve to categorize this temporary setback as a demand collapse. On the contrary, long-term EV demand trends remain stable and continued EV adoption is on the cards through 2030. An evaluation of key macroeconomic trends that impact long-term lithium prices suggests the commodity is well-positioned to book robust price gains in the next decade.
Driven by favorable long-term expectations for lithium prices, there are many reasons to be optimistic about publicly listed lithium miners. Arcadium Lithium PLC (ALTM, Financial) stands out as an attractively valued lithium producer with a long runway to grow.
Lithium outlook for 2024 and beyond
To assess the outlook for lithium, it is important to evaluate two key areas.
- The demand environment.
- Supply projections.
Demand for lithium, despite concerns regarding EV sales, will remain strong in 2024. According to Morningstar, lithium demand will grow to 1.1 million metric tons in 2024, up from just over 900,000 metric tons in 2023. Statista also projects lithium demand to grow to 1.1 million metric tons this year. The deciding factor will be EV sales.
Despite general concerns over a slowdown in EV sales, BloombergNEF projects global passenger EV sales to increase 21% in 2024 to 16.7 million, with 70% of unit sales being fully electric vehicles.
Exhibit 1: Sales of passenger EVs
Source: BloombergNEF
China, according to Bloomberg, will continue dominating the EV sector in 2024. These projections guide for 20% EV share of global vehicle sales this year, an increase from 17% in 2023. Looking at the long term, the International Energy Agency projects EVs to account for 60% of new cars sold globally by 2030, which suggests the market will grow exponentially with approximately 350 million EVs on the road by then.
This stellar growth in EV sales will contribute positively to the expected demand for lithium. According to BMI Research, a part of Fitch Solutions, lithium is likely to enter a supply deficit by 2025, mainly driven by the increasing demand in China that will exceed supply in a few years. According to BMI data, China's lithium demand is expected to grow 20.4% annually through 2032 while lithium supply is projected to grow by 6% over the same period.
Many other research firms and analysts share the view that lithium will be in short supply in a few years. Deutsche Bank's director of lithium and clean tech equity research Corinne Blanchard said:
"We do fundamentally believe in a shortage for the lithium industry. We forecast supply growth of course, but demand is set to grow at a much faster pace."
According to Blanchard, there will be a lithium deficit of at least 40,000 tons by 2025, which will grow to around 768,000 tons by 2030.
The projected lithium shortage will inevitably exert pressure on prices as EV manufacturers will be competing to gain access to lithium carbonate to be used in vehicle batteries.
Exhibit 2: Lithium demand/supply projections
Source: Fastmarkets
Some analysts, however, do not agree on the possibility of a supply deficit by 2025, but still share the view that lithium prices will head higher in the long run as clean energy goes mainstream.
From a supply perspective, 2024 is expected to be a record-breaking year, with global lithium supply increasing by 40% in 2024 to 1.4 million metric tons of lithium carbonate equivalent, according to UBS. This supply surge will result in a temporary lithium surplus of 12% this year. According to Fastmarkets, this excess supply will not necessarily push lithium prices down in 2024 as the industry is already approaching deeper levels of the cost curve. As restocking begins in the second quarter, Fastmarkets projects a mild recovery in lithium prices.
Overall, lithium, after losing 80% of its market value in 2023, looks well-positioned to enjoy stable pricing trends in the first half of the year and potentially higher prices toward the end of the year. The next year is likely to mark the beginning of a major bull run in lithium prices with the supply of the commodity expected to lag demand for several years.
The case for Arcadium Lithium
Arcadium Lithium was created in January through the merger of U.S.-based Livent Corp. and Australia's Alkem. Today, the company has lithium mining assets in Argentina, Australia, Canada, China, Japan and the United Kingdom. The company uses both hard-rock mining and brine extraction methodologies to produce battery-grade lithium products.
Arcadium is planning to expand its brine-based lithium production capacity in Argentina from around 40,000 metric tons of lithium carbonate equivalent to over 200,000 by 2030. The company is expanding its existing production facilities in Salar del Hombre Muerto and Olaroz and building new projects in Sal de Vida and Cauchari. These regions in Argentina enjoy substantial cost advantages when it comes to lithium mining and production.
Some of these advantages stem from the high lithium concentrations in these regions compared to many other global deposits and the high quality of lithium available for mining. Geographical advantages, such as large flat stretches, enable Arcadium to carry out brine-based lithium extraction very economically. In return, this economically produced lithium allows the company to compete with its global peers even if broad lithium prices fall sharply.
As the world's third-largest lithium producer by volume following the merger, Arcadium stands to benefit from rising lithium prices in the future, which should lead to a noteworthy improvement in operating margins.
Arcadium Lithium, since debuting on the New York Stock Exchange, has attracted several Wall Street analysts. The below table highlights some of the recent analyst actions for Arcadium Lithium.
| Analyst | Research firm/bank | Rating | Price target | |
| Charles Neivert | Piper Sandler | Underweight | $4.5 | |
| JP Morgan | Neutral | $5 | |
John Roberts | Mizuho | Neutral | $6 | |
Austin Yun | Macquarie | Outperform | $7.30 | |
Joel Jackson | BMO Capital | Market Perform | $7 | |
Kevin McCarthy | Vertical Research | Hold | $8 | |
Pavel Molchanov | Raymond James | Outperform | $11 |
Source: Business Insider
Based on these price targets, Arcadium seems cheaply valued given that the stock is trading around $4.60 as of Feb. 12.
Takeaway
For lithium producers, the price of lithium has been the single most influential factor affecting their stock prices in recent years, which highlights the important role played by macroeconomic factors in determining the market value of lithium manufacturers. With lithium prices projected to stabilize in 2024, leading global lithium producers seem well-positioned to report strong earnings growth following a few quarters of decelerating growth. Arcadium Lithium, with its access to low-cost production facilities in Argentina, is likely to emerge as one of the biggest winners of a lithium upcycle.
