Rising demand for rechargeable batteries due to growth in electric vehicles has propelled a more than doubling in lithium prices, but new analysis by Morgan Stanley predicts the cost of the metal could fall by 45 per cent by 2021.
A string of new lithium projects and expansion plans in Chile threaten to add about 500,000 tonnes per year to global supplies by 2025, and electric vehicle penetration will be "insufficient" to offset this, the bank said in a research note today.
"We expect these supply additions to swamp forecast demand growth. As a result, we forecast 2018 to be the last year of global lithium market deficit, followed by significant surpluses emerging from 2019 onwards," Morgan Stanley said.
The lender said electric vehicles would have to make up around 13.7 per cent of the market by 2025 to "clear the market" and offset supplies compared with expectations of a nine per cent penetration rate. Currently they make up less than two per cent of global sales.
Morgan Stanley expects the lithium price to start correcting from 2019, falling to $11,250 per tonne from $13,375 per tonne this year. It said prices will fall significantly in 2020 to around $8,500 per tonne and in 2021 to just over $7,000 per tonne.
Two major lithium producers were downgraded by analysts at the bank: Albemarle and SQM were both downgraded to "underweight" from "equal weight". Shares in both firms, which are listed in New York, fell more than seven per cent in US morning trading.
Morgan Stanley forecasts the price of lithium carbonate will fall from $13,375 a tonne to $7,332 a tonne by 2021, and then towards its marginal cost of production at $7,030 a tonne thereafter.