Lithium’s Sharp Price Decline: A Potential Opportunity?

In recent years, lithium has been at the center of the clean energy revolution, driven by its key role in powering electric vehicles (EVs) and other high-demand technologies like energy storage and consumer electronics. Lithium demand surged as many companies have focused on shifting toward greener solutions, leading to soaring prices during the EV boom. However, over the past year, lithium prices have plummeted due to oversupply, with some contracts seeing declines of nearly 90%. While this sharp drop may have concerned many, some market experts predict that lithium demand could strengthen significantly in the coming years, offering a potential window of opportunity for long-term investors to acquire shares in lithium companies at potentially attractive valuations. Companies participating in the supply chain, like Atlas Lithium (NASDAQ: ATLX), could be key players as the market recovers.

Lithium prices saw an extraordinary boom, particularly between 2021 and 2022, as the global demand for EVs skyrocketed. However, the rapid expansion of lithium production – especially in China – has led to an oversupply situation. As producers ramped up capacity to meet anticipated demand, prices plummeted. Lithium hydroxide, for example, which hit a peak of $85,000 per metric ton in 2022, now trades at approximately $12,000 per metric ton. Similarly, lithium carbonate contracts, which exceeded $40,000 per metric ton just last year, have dropped to around $13,000 per metric ton. This steep decline has shaken confidence in the market, but it could also present a value-buying opportunity. Investors willing to look beyond the short-term oversupply concerns may find the current low prices of some players an appealing entry point. While supply imbalances have driven down prices, the McKinsey Battery Insights team argues that the demand side of the equation is set for a resurgence, primarily fueled by the accelerating shift toward electric mobility and renewable energy solutions. By 2025 and beyond, the team argues that several key factors could drive a significant increase in lithium demand:

Electric vehicle adoption: Some governments are pushing aggressive policies aimed at reducing carbon emissions, and EVs are central to some of these efforts. The U.S. Inflation Reduction Act, the EU’s upcoming ban on internal combustion engine vehicles by 2035 and China’s aggressive EV policies could drive a surge in EV sales. As more automakers transition to electric fleets, demand for lithium-ion batteries, the core component of EVs, could soar. McKinsey predicts that by 2030, up to 90% of passenger vehicle sales in key markets like the U.S., Europe and China could be electric.

Energy storage and green energy: Beyond EVs, lithium’s role in renewable energy storage could also play a significant role in future demand. As solar and wind power generation grow, large-scale battery storage solutions will be necessary to store and distribute energy. Lithium-ion batteries are the dominant technology in this space.

Technological advancements and policy support: Battery technology improvements could support this demand growth. According to McKinsey's Battery Insights team, global demand for lithium-ion batteries is projected to increase dramatically over the next decade, growing from 700 gigawatt-hours (GWh) in 2022 to an astounding 4.7 terawatt-hours (TWh) by 2030.Long-term demand projections: Data from Statista anticipates that global demand for lithium will surpass 2.4 million metric tons of lithium carbonate equivalent by 2030, doubling from projected 2025 levels. This increase suggests that the current price drop is likely temporary, with supply needing to catch up as demand potentially surges over the next decade. Amid this shifting landscape, Atlas Lithium could be one company to consider for playing a potential increase in the value of lithium. Based in Brazil, Atlas Lithium says it is advancing its hard-rock lithium project in Minas Gerais, which is among the largest lithium exploration projects in the country. Atlas Lithium argues that its strategic advantage lies not only in its sizable resource base but also in its efficient technological approach to lithium processing. The company is preparing to ship its fabricated modular dense media separation (DMS) lithium processing plant from South Africa to Brazil. This technology is designed to separate lithium-bearing spodumene from other materials, providing a high-grade lithium concentrate crucial for battery production, the company says. Atlas Lithium notes that the DMS technology it uses reduces water consumption significantly compared to traditional lithium processing methods, making it an environmentally sustainable way to produce high quality lithium. As ESG (Environmental, Social and Governance) factors become increasingly important to investors, Atlas Lithium argues that its sustainable practices could enhance its appeal. The company believes its recent progress in advancing its Brazilian operations marks a pivotal moment. The upcoming shipment of its processing plant to Brazil, packed into over 100 containers, is a testament to the logistical and operational progress that could allow Atlas to quickly capitalize on a possible new wave of lithium demand, Atlas Lithium asserts.