When will the lithium market rebalance?

Wood Mackenzie (WoodMac) has provided an updated outlook on the lithium market, suggesting it is heading towards a “significant supply surplus”.

At the WoodMac Future Facing Commodities Forum, analysts acknowledged a current oversupply in the lithium market and suggested the commodity’s demand profile was evolving.

“Significant market tightness in 2021 and 2022 led to high lithium prices, which prompted a global call for increased production to boost supply,” WoodMac lithium research director Allan Pedersen said.

“Producers responded, but the time required for asset construction has meant a delay in additional supply hitting the market.

“The first new volumes started arriving in 2023 and more production will continue to be added through 2027.”

Production increases are expected as demand from electric vehicles (EVs) and renewable energy storage grows. WoodMac sees a market surplus sustaining for a while yet though.

“The overall market surplus will remain until the early 2030s, after which it is not possible to identify where new supply will originate,” WoodMac said.

“The market is currently experiencing a growing surplus until curtailment takes place.”

The report noted between 2023 and 2025, the supply of lithium chemicals has grown 82 per cent to just under two million tonnes, with 75 per cent of the additional supply from Chinese-based assets.

WoodMac believes a large proportion of future supply growth will come from the rest of the world as Chinese assets are reaching steady-state production.

Pilbara Minerals (PLS) continues to power ahead with its growth strategy despite the market downturn, announcing plans in August 2024 to expand its spodumene production to two million tonnes per annum.

PLS is currently ramping up the P1000 expansion project in Western Australia and the Pilgan plant optimisation, the latter of which is expected to be completed in the June 2025 quarter.

The Federal Government is getting behind the critical minerals sector, recently promising to establish a $1.2 billion Critical Minerals Strategic Reserve.

The Western Australian Government also unveiled a funding support package of up to $150 million to assist the lithium sector amid the critical mineral’s downturn.