Excess Lithium: A Blessing Turned Curse? (according to Wood Mackenzie)
The global lithium market is currently grappling with a short-term oversupply and soft prices, a situation primarily driven by rapid expansion in lithium supply, particularly in China. This expansion has seen Chinese producers increase domestic output by about 55% since 2023, a trend that is expected to outpace Australia as the top producer by 2026.
Simultaneously, significant new supply from Australia, Argentina, Chile, and rising African producers, along with emerging producers in Brazil, has collectively boosted mined supply by approximately 22% in 2024 alone. However, demand from electric vehicles (EVs) and energy storage, while strong, has not grown as fast as anticipated, resulting in lithium prices falling to multi-year lows in 2025 despite continued EV adoption.
The demand for lithium carbonate, particularly in LFP cathode chemistries for electric vehicles and energy storage applications, remains strong. However, the current imbalance between supply and demand growth poses a significant challenge for the industry. The key question is who will take the hit, whether it be through stockpiling or production curtailment.
While allowing stockpiles to build up can address oversupply, it creates challenges such as delayed revenue and potential product degradation. On the other hand, curtailing production can save on storage and/or reprocessing costs but implies a permanent loss of potential revenue. Wood Mackenzie, a source that discusses the issue of oversupply in the lithium industry, highlights these complexities.
Despite oversupply and price pressures in early 2025, demand fundamentals remain strong with renewed buying from battery manufacturers after inventory destocking. Regulatory and political factors, like China’s shutdown of CATL’s Jianxiawo mine for several months in 2025, illustrate supply risks that can tighten the market abruptly and cause price spikes despite overall surpluses.
China’s battery manufacturing is characterized by significant overcapacity, which puts downward pressure on prices but can lead to industry consolidation and export-driven growth. Government intervention in China to reduce "disorderly" competition and potential production curtailments could moderate the supply surplus and stabilize prices in the mid-term.
Global EV adoption and energy storage expansion are expected to continue growing, supporting longer-term lithium demand increases despite short-term market fluctuations. However, potential supply underinvestment due to current low prices might cause future constraints around 2028, introducing volatility to the lithium market that could affect EV production cost and timelines.
In summary, the lithium market in 2025 faces a short-term oversupply and price softness driven by rapid capacity growth, especially in China, coupled with demand growth that, while strong, has not accelerated as fast as anticipated. However, evolving geopolitical and regulatory factors, combined with continuing EV and battery storage demand growth, suggest the market will balance over the next several years, with prices potentially recovering as supply tightens and demand continues upward.
References:
[1] Wood Mackenzie. (2025). Lithium Market Outlook 2025-2030. Accessed: [link]
[2] Benchmark Mineral Intelligence. (2025). Lithium Price Tracker. Accessed: [link]
[3] Reuters. (2025). China's CATL Shuts Jianxiawo Mine for Several Months. Accessed: [link]
[4] BloombergNEF. (2024). China's Battery Manufacturing Overcapacity. Accessed: [link]
[5] International Energy Agency. (2024). Electric Vehicles: Global Trends 2024. Accessed: [link]
- The challenge for the renewable-energy industry, particularly in the realm of electric vehicles (EVs) and energy storage, lies in balancing the current oversupply of lithium, driven primarily by Chinese producers, with the strong demand that exists for lithium carbonate.
- The financing of renewable-energy projects, such as EV production and energy storage applications, may be affected by the current lithium market imbalance as potential supply underinvestment due to low prices could cause future constraints around 2028, introducing volatility that could affect production cost and timelines.
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