LONDON – A rush to invest in new and expanded mines for lithium, a key ingredient in batteries used in electric cars, means material will flood the market just as fresh demand kicks in, potentially curbing price gains.
While demand for lithium batteries is due to soar, the market is on course for a global surplus next year or 2018 as miners gear up to expand output – overwhelming demand for the commodity by electric automakers such as Tesla Motors Inc. (TSLA.O).
It’s not a new phenomenon. Other commodities have seen similar excitement about the future, such as uranium and rare earths. Investors chased bullish scenarios only to be disappointed when prices crashed due to excess supply or less than expected demand.
World lithium reserves are 14 million tonnes, according to the U.S. Geological Survey, and about half of these are being developed into projects. Established lithium miners have announced in recent months a slew of expansion projects – many in the so-called lithium triangle in Chile, Argentina and Bolivia – while other firms are racing to build new mines.
Prices of lithium more than tripled in a matter of months up to April, before retreating slightly from peaks. “We get a lot of clients who’ve been approached by mining juniors wanting funding to pursue yet another lithium project,” said analyst Paul Gait at Bernstein in London.
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