Healthy demand from battery makers and shortages have propelled lithium prices to record highs, but increased supply and the removal of subsidies for electric vehicles by China mean a pullback is to be expected.

Battery-grade lithium prices trading near $85,000 per ton are more than double the levels seen in early 2022 and four times the levels seen in September 2021.

China, which bought one in every two electric vehicles sold last year, is expected to remain the number one country for electric vehicle sales for many years to come. But the pace of demand growth is slowing.

Benchmark Mineral Intelligence (BMI) predicts next year’s supply at nearly 863,000 tonnes, up 36% from this year. The consultancy sees the deficit in 2023 shrink to 5,000 tonnes from 80,000 tonnes this year.

Most of the lithium produced globally – 80% of the more than 710,000 tonnes this year, according to BMI – will be used to make batteries for electric vehicles. Lithium is also used as a lubricant and in medications to treat mood disorders.

Rising inventories at lithium-consuming companies will also put pressure on prices, but not to the extent that they fall back to levels of around $6,000 a ton seen in November 2020, analysts said.

Bank of America analyst Michael Widmer expects supplies to rise 38% next year to 880,000, and a surplus of more than 16,000 tonnes in 2023 from a deficit of 62 000 tons this year.

Overall, producers are racing to bring new projects online as demand for lithium is expected to grow at an exponential rate alongside accelerating demand for electric vehicles.

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