A new report from Bloomberg shows how the glut in lithium supply could suggest the electric car boom is over for now.
There was once a time when lithium carbonate spot prices soared higher, all with increasing demand from electric car companies. This all ended in the late 4Q17 when the global economy entered into a cyclical downturn. In the last 15 months, lithium spot prices have been halved.
The result of the glut is a combination of factors, including decreasing electric car demand from China, and Australia opening up six new lithium mines.
Lithium prices fell -31% in 15 months, and with no confirmation of a bottom, could retest 2016 lows in the coming quarters.
No one knows when prices will stabilize. This comes at a time when Australian lithium production could increase by almost a quarter over the next two years, plus the second-largest producer in Chile is expected to double output by 2023/24.
Chile's SQM has seen 2Q19 sales collapse by half, to $70.2m, due to lower spot prices. And in China, Tianqi Lithium, the country's largest producer, said profits in 1H19 crashed 85% YoY.
Macquarie Capital analyst Vivienne Lloyd wrote a recent note explaining how the electric car industry was slowing, "inferring that on top of excess supply [of lithium], demand [for EVs] is now a problem."
Despite the price rout, there's some demand coming from Europe where new electric cars are being rolled out.
Tianqi Lithium said the rapid investment into the lithium industry over the last five years was "returning to normal" and that uncompetitive producers would then be "eliminated:" basically describing a bust cycle is underway in the space.
The short term view is that global electric vehicle demand continues to wane across the world, forcing a further decline in spot prices that could trigger a larger bust on the producer side of the market in 2020.
With that being said, lithium spot prices overlaid with E-mini S&P 500 futures could be a predictor of where markets are headed next: