Lithium’s rocky patch: Key building block of EV revolution faces uncertain future under Trump

The years-long price rout that has plagued lithium, a key battery mineral, may be easing analysts suggest, but the green energy metal still faces an uncertain future under a new Trump presidency.

Australia ranks among the top countries by share of known reserves of lithium, copper, cobalt and nickel, all of which are crucial ingredients in lithium-ion batteries. Demand for these batteries, which power electric cars and store renewable energy power, is growing exponentially.

Morgan Stanley says lithium has “likely found a near-term floor,” but further cuts are needed to bring the market back into balance.Credit: Covalent Lithium

However, lithium miners and explorers hit a rocky patch in 2024. The new year could be a mixed bag for the white metal that closed out last year down nearly a quarter below where it started.

With prices slipping, lithium projects have become uneconomic, forcing miners to shutter operations or cut production guidance. Mineral Resources mothballed its Bald Hill mine and Liontown slowed expansion at Kathleen Valley. Australian-listed lithium explorers Charger Metals and Delta Lithium lost between 50 per cent and 65 per cent of their value on the local bourse.

“It was a tough year in the lithium world,” said Ken Brinsden, industry veteran and chief executive of Quebec-based Patriot Battery Metals. “Nobody’s feeling comfortable at today’s price, it’s a massive headwind.”

Finance firm Morgan Stanley recently told clients in a note that while lithium prices have “likely found a near-term floor,” further cuts to production are needed to bring the market back into balance.

“Given the rise of swing supply that can turn back on quite quickly, we see any price uptick likely being short-lived,” the note said.

Trump’s return to the White House could also have far-reaching consequences for Australia’s exports of lithium and other minerals critical to the green energy shift, amid expectations of a slowdown in demand for electric vehicles.

The US electric car industry has grown rapidly on the back of President Joe Biden’s Inflation Reduction Act, with the resulting policy providing hundreds of billions of dollars in tax credits and funding for renewable energy, electric battery manufacturing and electric vehicle production and sales.

The US currently uses about 6 per cent of the world’s lithium and is expected to soak up 9 per cent by 2030 according to Morgan Stanley’s modelling.

Trump is expected to revoke consumer incentives of up to $US7500 ($11,300) for electric vehicle purchases, which will make electric cars more expensive to buy and result in fewer sales. He has also loudly proclaimed a return to “drill, baby, drill” fossil fuel energy policies when he is inaugurated this month.

Tesla cars in front of the company’s plant in California. The carmaker has several supply agreements with Australian miners, including Liontown.Credit: Bloomberg

In an extreme scenario, demand growth for batteries in the US electric vehicle market could plunge by as much as 20 per cent, modelling suggests.

“At the end of the day, we will see [electric vehicle] growth continue, it’s just going to be a lot slower,” said Prateek Biswas, a transport and materials analyst at consultancy Wood Mackenzie.

While a second Trump administration will intensify the global challenges of averting catastrophic climate change, it may not all be bad news for Australia.

It’s a big problem for the West, especially the US, that all these critical minerals are now funnelled through China

Ken Brinsden, industry veteran and chief executive of Quebec-based Patriot Battery Metals.

Trump’s promise to rescind “unspent” funds under the Inflation Reduction Act could make the US a less-attractive destination for green energy investment, and increase Australia’s ability to compete for global capital to harness more opportunities in the processing and refining of critical minerals. “If other countries vacate the field, then let’s take the rug from under them that they no longer want,” Climate Change Authority chair Matt Kean said.

Donald Trump has vowed to stop offshore wind projects on “day one” and “terminate” the Inflation Reduction Act.Credit: AP

Brinsden, whose company late last year inked a crucial supply deal with global car manufacturer Volkswagen and its battery offshoot PowerCo, said China’s dominance of the lithium and critical mineral production is a major headache for the West that will shape US and other nations’ policies.

“Despite what Trump says, I think you’ll find what he does is something completely different. It’s a big problem for the West, especially the US, that all these critical minerals are now funnelled through China,” Brinsden said.

Global miner Rio Tinto is also backing the sector with large investments.

Rio is close to completing a $10.7 billion takeover of Arcadium Lithium. That will give it an immediate production boost in Argentina where Arcadium extracts lithium from groundwater “brines” that lie beneath salt lakes in the Andes mountains.

Rio said in December it will spend $4 billion expanding its Rincon operation, also in Argentina. Chief executive Jakob Stausholm told investors late last year the current down-cycle in lithium played into Rio’s plans.

Lithium prices are down around 90 per cent from their record highs reached in 2022.Credit: Christian Sprogoe

“If we take a decision to build Rincon for example, that will produce in 2028/29. Actually, the lower the price goes, the more oversupply there is in the years in between, [that] is only good because it means that less will be produced out there [in 2029],” Stausholm said.

Brinsden said, experience suggests the slump won’t last forever. “Typically in the lithium world, it really doesn’t last that long. The cycles have proven to be pretty short historically,” he said.

“While investors are sitting on the sidelines today, I can assure you, they’re watching very closely what’s going on with respect to prices and presumably are ready to pounce,” Brinsden said.

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