Lithium is expected to remain in surplus until 2025, with rebalancing anticipated by 2026 and a potential shift to deficit by 2027 as demand growth and production discipline take hold.
As the lithium market navigates a period of excess supply and subdued prices, Bank of America analysts project 2025 as the year when the current glut reaches its peak.
Despite selective production cuts in response to price declines, a combination of exponential market growth, geopolitical strategies, and relentless supply expansion continues to sustain the surplus.
A persistent surplus
The lithium market has seen rapid growth in production, driven largely by output from hard rock mines, particularly spodumene. These mines supply material to converters, which maintain production as long as their operations remain profitable, regardless of lithium's market price.
According to Bank of America, this dynamic will extend the market imbalance, with the surplus not expected to subside until 2026.
"Even at current lithium and spodumene prices, converters can make a living," analysts noted, underscoring the resilience of supply, even in the face of declining profitability for some producers.
Demand growth challenges
While the electric vehicle (EV) market has driven much of the demand for lithium, recent trends suggest slower-than-expected adoption rates outside China.
Bank of America highlighted that global EV penetration rates would need to rise by an additional seven to 10 percentage points to clear the existing surplus. Instead, projections have been adjusted downward by two percentage points due to waning EV popularity in key markets.
The report paints a stark picture of the rebalancing challenge. Absent significant demand growth or economic pressures forcing higher-cost producers to exit the market, the surplus could persist well into 2026.
Geopolitical and strategic decisions add complexity
Strategic considerations have added another layer of complexity to the market.
Producers are ramping up supply despite the oversupply dynamics, driven by geopolitical initiatives and government incentives. For example, Liontown Resources (ASX:LTR) secured $250 million in convertible notes from LG Energy Solution to fund its Kathleen Valley site, aiming to meet requirements under the US Inflation Reduction Act. Similarly, Lithium Americas obtained a $2.26 billion loan from the US Department of Energy for its Thacker Pass project, underscoring the strategic importance of lithium in EV battery supply chains.
Meanwhile, Rio Tinto's Jadar project in Serbia has been reinstated amid efforts to establish a robust European battery supply chain. Despite local opposition, Rio Tinto is doubling down on production capacity, with plans to expand from 75,000 tons to 170,000 tons by 2028.
Inflection point in sight
Bank of America anticipates that 2025 will mark a critical turning point.
Selective production cuts are beginning to chip away at the surplus, and the supply overhang is expected to diminish in 2026. By 2027, analysts project that the market could shift into deficit, potentially ending the bear market. However, this timeline hinges on greater production discipline from marginal producers, a scenario the report views with skepticism.
"We are not optimistic that this timeline will be met and see limited upside potential to prices for now," analysts wrote.
Unless higher-cost operators shutter operations or demand surges dramatically, lithium prices are likely to remain subdued in the near term.