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(Kitco News) - The lithium market's unprecedented run to record highs may slow down a little in 2022 as the market find a short-term fundamental balance; however, Bank of America expects this is just the start of a bigger move in the long term.
In a telephone interview with Kitco News, Michael Widmer, commodities analyst at Bank of America, said that the battery metal's supply and demand fundamentals support current prices. Lithium, also known as "white gold," rallied nearly 300% last year, according to data from Benchmark Mineral Intelligence. Benchmark said that lithium prices exceeded $40 per kilogram at the start of the year; some analysts project that prices could rise above $50 per kilogram by the end of 2022.
"If you look at just the supply and demand fundamentals, I think the current lithium price is justified," said Widmer.
Widmer added that prices this year could stabilize at current levels as more supply comes online; however, he said that any plateau in the market would be short-lived as the battery metal continues to face growing demand and little new supply.
In its latest outlook on lithium, Bank of America said that demand for the battery metal is expected to grow an average of 28% through 2025.
While supply is expected to remain tight for at least the next three years, demand will continue to grow as the world pushes for more sustainable green energy. Bank of America noted that demand for lithium is expected to rise to 3 million tonnes by 2030 and by 5 million tonnes by 2050.
"Producers will be hard-pressed to keep the lithium market supplied," said Widmer. "You literally need every pipeline project to come online on time and with the volume promised to prevent meaningful short-term effects on the price."
The most significant demand for lithium comes from the electric vehicle (EV) market. Bank of America noted that while battery compositions may change over the years, lithium remains a critical component for batteries.
"While changes in cathode compositions has immediate implications for nickel and cobalt offtake, car manufacturers keep relying on lithium-ion batteries. As such, lithium demand should continue to increase in the coming years," Bank of America said in its latest report.
While higher prices might have a modest impact on EV demand, Widmer noted that supply constraints remain a significant factor currently driving prices.
Widmer said that companies will have to double their capital expenditures in the next 10 to 30 years to reach current demand targets.
"There is just no way that you're going to get to zero carbon emission by 2050 without companies investing more in production," he said. "This is going to keep lithium prices well supported for longer."