Lithium supply chain

Cyclical oversupply masking structural undersupply

Lithium prices collapsed more than 80% from the November 2022 peak of ~$85,000/tonne (spodumene) to a trough near $13,000/t LCE in 2024-25, driven by a surge in Chinese spodumene-to-hydroxide conversion capacity that outpaced demand. Prices snapped back toward ~$26K/t in early 2026 before easing, but the structural story is unchanged: electrification still requires several times more lithium by the mid-2030s (from ~900kt LCE in 2024 toward 2,500-4,000kt). The investment deferred through the trough is what seeds the next squeeze.

State of the art (2026)

Lithium spent 2024-25 in a brutal trough near $13K/t LCE, then snapped higher in early 2026 to roughly $26K as CATL's Jianxiawo lepidolite halt, Zimbabwe's accelerated concentrate-export ban and contract restocking tightened the spot market. Analysts split sharply on 2026 balance: Wood Mackenzie and S&P Global still see surplus, while Morgan Stanley and UBS model deficits. Structurally little has changed. China retains roughly two-thirds of refining capacity, the genuine chokepoint. Western supply is inching forward: Rio Tinto's Rincon starter plant began carbonate output, Standard Lithium and Equinor's El Dorado demo plant is ready for FID, and the CODELCO-SQM NovaAndino Litio joint venture secured Atacama to 2060. The investment deferred at the bottom still seeds the next squeeze.

Refining concentration is the underappreciated chokepoint

Market attention focuses on lithium mining, but the critical bottleneck is refining. Over 65% of global lithium hydroxide and carbonate refining capacity is in China, regardless of where the ore is mined. Australian spodumene is shipped to China for conversion; Argentine brine produces lithium carbonate that is often further processed in China. This refining concentration means that even 'diversified' Western lithium supply chains have a Chinese dependency embedded in the middle. Breaking this requires new refining capacity in the US, Europe, and Australia — projects that are 3-5 years from commercial operation.

Mine investment cycles create predictable supply shortages

Lithium mine development takes 5-10 years from discovery to production. When prices collapse, junior miners lose financing, major producers defer expansion, and greenfield projects stall. This is happening now: Albemarle has cut capex guidance by 40%, Liontown Resources deferred its Kathleen Valley expansion, and multiple DLE pilot projects have paused. The investment decisions not being made in 2024-2026 will create the supply shortage of 2029-2032. This pattern — price collapse kills investment, creating the next shortage — is identical to oil market cycles.