Major Shifts in the Global Lithium Market

The global lithium market is on the cusp of significant changes, with a new wave of supply entering the scene.

Emerging Supply Sources

Analysts at UBS have identified a “second wave” of lithium supply, primarily driven by emerging sources in Africa and China, which is reshaping market dynamics.

The new lithium supply is quickly becoming a reality rather than a distant prediction. UBS analysts highlight that Africa and China are the main contributors to this new supply wave.

“We see volume from the continent (Africa) growing from 0 in 2022 to ~290kt LCE in 2028, reaching ~10% of global supply,” UBS analysts noted.

This growth positions Africa to contribute nearly 10% to global lithium supply by 2028, despite facing logistical challenges.

On the other hand, China is set to expand its role in the lithium market significantly. Chinese lepidolite producers and those operating African spodumene assets have emerged as new marginal cost players.

Production Cost Dynamics

Lower production costs in China than previously anticipated may lead to downward pressure on global lithium prices. This cost advantage could redefine the global pricing floor for lithium.

With the increase in supply from Africa and China, UBS has adjusted its lithium price forecasts downward. The changing supply landscape suggests potential oversupply by the mid-2020s, likely resulting in substantial price reductions.

UBS has downgraded its near-term lithium price forecasts by 3-26% for 2025-2028. For example, spodumene prices, currently below $800 per tonne, are now estimated to average $750 per tonne in 2025 and $725 per tonne in 2026, marking a decline from previous forecasts.

Despite this, the long-term forecast for lithium carbonate remains stable at $19,000 per tonne, indicating a cautious outlook despite the expected influx of supply.

Impact on Producers and Investors

The influx of new supply is expected to have significant implications for lithium producers and investors. UBS has downgraded ratings on several lithium equities due to anticipated impacts of lower prices on profitability.

• Pilbara Minerals (ASX:PLS): Price target reduced to A$2.00 per share, with a “sell” rating.
• IGO (ASX:IGO): Rating downgraded from “neutral” to “sell,” with a revised price target of A$4.95 per share.

The anticipated second wave of lithium supply from Africa and China is poised to transform the global lithium market. While it may alleviate some supply concerns—particularly from the electric vehicle sector—it presents challenges for existing producers facing tighter margins and increased competition.

UBS advises the market to prepare for potential price volatility and lower returns for lithium producers, as the entry of new, lower-cost suppliers will prompt market recalibration with far-reaching long-term effects on pricing and supply dynamics.