The highs of the recent lithium cycle were much higher than analysts expected and consequently the retreat from scarcity pricing was equally as swift. In 2021, carbonate prices rose aggressively from US$15,000/t to over US$80,000/t in 2023. This occurred as EV demand started to gather pace in an immature market with minimal excess supply. This caused battery makers to stock up on inventories to avoid paying higher prices in the future. At the same time, miners used this incentive pricing environment to enter the market. Otherwise uneconomic projects were profitable at this new price level, including those from more difficult ore sources such as lepidolite. Incumbents committed to huge expansion programs, as well as new supply from China, Africa, and uneconomic western projects. Small high cost producers rushed into production, with hopes of reinvesting the proceeds into building out a more sustainable business. From2021 to 2023, lithium supply almost doubled. We estimate a quarter of this supply came from sources not producing in 2020.
This dynamic has now corrected and prices have fallen back into the cost curve, necessitating the slow down of many brownfield expansions and the cancellation of marginal greenfield projects.
While demand will still be a key driver of price direction from here, we see green shoots with the demand / supply equation quickly moving toward balance. The market has yet to identify this trend, still looking backwards at the surplus evident at the end of last year. We expect further updates from the Chinese reporting season and are watching Chinese EV data closely for signals that demand could recover faster than expected. We believe IGO is the best way to play this dynamic. IGO has a 24.99% stake in Greenbushes, which is the lowest cost spodumene mine, with opportunities for production expansion. The stock is pricing in US$1,000/t spodumene, which is below listed peers, and under our incentive pricing assumptions.
