Lithium: An Abundance Potentially Leading to Over-saturation, According to Wood Mackenzie
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The lithium market is currently grappling with an oversupply issue, a result of rapid increases in production outpacing demand growth. This situation, as outlined in a report by Wood Mackenzie titled "Lithium: too much of a good thing?", has led to depressed prices despite robust demand for electric vehicles (EVs) and energy storage solutions.
China, aiming to become the world's largest lithium producer by 2026, has been a significant factor in this oversupply. The country has increased its domestic lithium mining output by about 55% since 2023, with Chinese firms also planning broader capacity increases[1][3]. Other countries, such as Australia, Argentina, Chile, Brazil, and emerging African producers, are also substantially increasing their lithium mine supply[1].
Despite these expansions, demand for lithium remains strong, driven by accelerating EV sales worldwide. China's EV sales rose 31-36% year-over-year in early 2025, while European EV sales also increased significantly, supported by government incentives[2]. BloombergNEF forecasts a 25% increase in global EV sales in 2025 compared to 2024[2].
The lithium market is expected to rebalance gradually as demand growth absorbs supply increases, narrowing the surplus[2][5]. However, short-term volatility due to regulatory or operational disruptions may occur, such as the temporary shutdown of CATL’s Jianxiawo mine for regulatory reasons, which can cause short-term price spikes[4].
Long term, demand growth from EVs and energy storage is expected to support lithium market tightening. However, the near- to mid-term outlook still includes some oversupply risks due to large project ramp-ups[1][2][5].
One of the challenges facing the industry is the significant proportion of lithium production that continues to be loss-making due to oversupply. In H2 2020, lithium carbonate dropped below $10 per kilo for two consecutive quarters[6]. Data on new projects indicates that while supply will continue to increase, growth will decelerate in the years leading to 2030[6].
The industry can address oversupply by allowing stockpiles to build up or by curtailing production, each with its own challenges and potential costs. The surplus in the lithium chemical market is expected to continue growing until at least 2027, posing a risk of being oversupplied for a long time due to continued production[6].
Prices hit extraordinarily high levels in 2022 due to producers building up strategic inventories. However, they have since dropped to around $10,000/t, a stark contrast to the $80,000/t levels seen late in 2022[1][2].
In conclusion, the current lithium surplus is a complex issue, with rapid supply expansions exceeding demand growth, particularly driven by China’s dominant ramp-up and new producers entering the market. The situation is expected to gradually improve as strong EV demand and energy storage uptake absorb much of the excess supply, though short-term volatility due to regulatory or operational disruptions may occur.
- The renewable energy industry, particularly electric vehicle manufacturers, are heavily reliant on lithium for battery production, and the finance sector must carefully navigate the current oversupply issue in the lithium market to ensure stable energy supply.
- Despite the ongoing oversupply situation in the lithium market, the finance industry should invest in renewable energy projects, as the demand for lithium is expected to tighten long term due to accelerating EV sales worldwide and increased energy storage solutions adoption.
