Chile has retained its status as the top producer of lithium in South America in 2023, and is second globally after Australia, according to Cochilco’s 2024-2025 lithium market projections.
In 2023, the national production reached 270,947 tons of lithium carbonate equivalent, reflecting a 4.3% increase from 2022 and a 120.5% rise compared to 2020. Production is forecasted to be 275 thousand tons this year and 285 thousand tons next year.
However, lithium prices have dropped sharply from the highs of 2022 due to decreased demand for electric vehicles, increased production, and lower purchasing volumes of the so-called “white gold.”
Chile remains the leader in the local lithium market
According to Cochilco, lithium carbonate prices soared in 2022, reaching values close to US$70,000 per ton in Asia.
However, this trend reversed the following year and has continued into early 2024. By the end of July, the price for a ton of lithium carbonate was trading at US$12,000, and lithium hydroxide was around US$12,100 per ton.
While Cochilco attributes a range of factors to this price decline, the primary focus remains on the electric vehicle market and unmet high expectations.
Electric vehicle expectations
On one hand, sales of electric vehicles have been lower than anticipated, coinciding with major markets “beginning to eliminate or reduce subsidies” for purchasing electric cars.
Although 100% electric models sold below expectations, plug-in hybrids fared better due to their more affordable prices. However, their batteries are considerably smaller and contain less lithium, impacting demand.
Lithium buyers have also cut back on their inventories, limiting their purchasing volumes, even as supply increases with new projects starting to extract the mineral.
Exports
In 2023, lithium exports fell by 4% compared to the previous year, amounting to US$7.823 billion.
By May 2024, exports have accumulated to about US$1.59 billion, marking a 65% drop compared to the previous period, “reflecting the decline in lithium prices in international markets. Lithium shipments constituted 3.8% of total exports in the first five months of the year, while this figure was 8.3% in 2023.”
China remains the primary destination for lithium shipments, accounting for 71% until May, followed by South Korea (16%) and Japan (4%).
Finally, Cochilco projects, based on a “Consensus Forecast” report, an average price of lithium carbonate of US$16,450 per tonne in the Asian market by 2025.
Chile’s Lithium Market: Leading the Charge in 2023
Chile maintained its position as the first producer of lithium in South America during 2023, and ranked second worldwide behind Australia, according to data from Cochilco in its 2024-2025 projection for the lithium market.
In 2023, national lithium production reached an impressive 270,947 tons lithium carbonate equivalent, which is a 4.3% increase from 2022 and a staggering 120.5% increase from 2020. Production projections for this year and next year estimate outputs of 275 thousand and 285 thousand tons, respectively.
However, it’s essential to note that lithium prices have plummeted from the highs reached in 2022, attributed to various factors including decreased demand for electric vehicles, increased production capacities, and reduced purchasing volumes of the precious “white gold”.
Chile Continues to Lead the Local Lithium Market
According to Cochilco, lithium carbonate prices saw a significant rise in 2022, with values approaching US$70 thousand per ton in Asian markets. However, this trend reversed in 2023 and continues into 2024. By the end of July 2023, lithium carbonate was trading for approximately US$12,000 per ton, with lithium hydroxide priced around US$12,100 per ton.
Several factors have contributed to this price decline, primarily revolving around the electric vehicle market and unmet high expectations from the previous year.
Expectations for Electric Cars
Sales of electric vehicles have fallen short of expectations, coinciding with a trend among leading markets to either eliminate or reduce subsidies for electric vehicle purchases. While 100% electric models have not performed as projected, plug-in hybrids demonstrated better sales figures thanks to their more affordable prices. Unfortunately, these vehicles require smaller batteries that contain less lithium, further impacting overall demand.
In addition, lithium buyers have opted to reduce their inventories, creating a limited purchase volume, even as supply has increased due to new extraction projects coming online.
Exports of Lithium: A Decline in Revenue
In 2023, Chilean lithium exports fell by 4% compared to the previous year, yielding an income of US$7.823 billion. As of May 2024, exports have accumulated around US$1.59 billion, presenting a 65% decrease compared to the same timeframe in the previous year, in line with the international market’s declining lithium prices. Notably, lithium shipments constituted 3.8% of total exports in the first five months of 2024, a significant drop from the 8.3% recorded in 2023.
China remains the primary destination for Chilean lithium exports, absorbing 71% of shipments until May, followed by South Korea (16%) and Japan (4%).
Price Projections and Market Insights
Cochilco, based on a “Consensus Forecast” report, projects an average value of lithium carbonate to stabilize at US$16,450 per tonne within the Asian market by 2025. Understanding these trends not only informs stakeholders in the lithium industry but also helps investors and consumers assess the future landscape of the lithium market.
Factors Influencing Lithium Prices
- Demand for Electric Vehicles: As consumer interest varies, so does the demand for lithium, the primary component in electric vehicle batteries.
- Global Production Rates: An increase in lithium production capacity around the world affects both supply and pricing structures.
- Subsidy Changes: Policy shifts regarding electric vehicle subsidies directly impact consumer purchasing power and market demand.
- Market Sentiment: Investor and manufacturer expectations can lead to volatility in market prices, reflecting immediate responses to global events.
Impacts of Lithium Price Fluctuations
Price fluctuations in lithium can have significant downstream effects across various industries:
- Electric Vehicle Manufacturers: A steep fall in lithium prices can help lower production costs for electric vehicles but could also reflect reduced demand.
- Battery Producers: Battery manufacturers must adapt to fluctuating raw material costs, impacting unit pricing for end consumers.
- Investors: Those invested in lithium stocks or commodities need to remain vigilant, as price drops can influence stock valuations and corporate earnings.
Recent Developments and Future Considerations
As the lithium market evolves, new technological advancements and geopolitical events will influence production capabilities and prices. For instance, Chile’s robust regulatory framework concerning sustainable extraction plays a vital role in ensuring environmental responsibility while meeting global demand for lithium.
Moreover, innovations in battery technology could alter the demand for lithium. Alternatives to lithium batteries are being explored, keeping the market on its toes.
Practical Tips for Stakeholders
- Diversify Investments: Investors should consider diversifying their portfolio, as reliance on a single commodity can be risky amidst volatile price trends.
- Stay Informed: Keeping abreast of market trends and technological advancements can better equip stakeholders to make informed decisions.
- Engage in Sustainable Practices: Embracing sustainable extraction practices can enhance brand value and appeal to environmentally-conscious consumers.
Case Studies: Chile’s Lithium Success
| Year | Production (tons) | Change from Previous Year | Lithium Carbonate Price (US$) |
|---|---|---|---|
| 2020 | 122,000 | – | – |
| 2021 | 250,000 | +105.0% | 56,000 |
| 2022 | 260,000 | +4.0% | 70,000 |
| 2023 | 270,947 | +4.3% | 12,000 |
Understanding how Chile has solidified its position as a leader in global lithium production over the years can shed light on future potential within the industry. As market dynamics shift, staying aware and adaptable will be key for stakeholders navigating the evolving landscape.