Tomorrow Investor

Lithium Remains Hottest Commodity of 2022 – But at What Cost?


With the surging demand for emissions-free transportation comes a greater demand for electric vehicles (EVs) – and with it an increased demand for lithium, one of the primary materials for rechargeable battery production. Even as 2022 draws to a close, lithium continues to be the hottest commodity going, attracting the attention of traders who previously focused on trading crude petroleum, coal, and copper.

Lithium trader Martim Facada of TRAXYS opines that trader activity in the global lithium market will change it for the better, improving its transparency and efficiency. He compared the current demand for lithium to that of crude oil back in the 1970s: at the time, governments sold petroleum directly to customers. However, when merchants provided business-to-consumer distribution channels, it changed the game, enabling the global petroleum market to evolve faster. Facada believes that the lithium scene is about to enter a similar phase.

However, a number of experts caution against comparing the current lithium market to the petroleum scene of the ’70s as the circumstances are not entirely similar. Unlike the massive scale of the petroleum market nearly 50 years ago, the lithium market remains small. Also, global oil production is pegged at over $3 trillion at today’s prices, while that of lithium only rakes up $30 billion.

Likewise, investment into various aspects of lithium production and distribution is still on the low end of the scale compared to what is being put into EV research, development, and manufacturing. 

The ongoing shortfall in supply is one reason why traders remain cautious about going into the lithium scene. Trafigura’s head of nickel and cobalt Socrates Economou recently remarked that, at current prices, lithium is at a point when its price alone can ruin demand. If those involved keep pushing prices upward, it is unlikely for the market to maintain sustainability.

Nevertheless, Trafigura’s analysts believe lithium demand will hit the 800,000-ton mark before the end of the year, certainly higher than the 140,000 tons previously forecast. Demand is also expected to grow by 200,000 to 250,000 tons a year well into 2025.

For his part, Albemarle CEO Kent Masters admits that the maturing of lithium as a more tradeable commodity will take more time than most experts think. But for it to reach its full potential as a commodity market, a tool would be required to enable traders to hedge the price of the metal or make financial speculations on the market. Indeed, Masters thinks that what the industry needs to look out for is the development of liquid futures contracts.

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