Remember the lithium shortage and price jump? In the four months since, lithium fell 70% amid talk of a lithium glut.

That fits with Tesla’s larger price cuts aimed at internal-combustion-engine vehicles.

By wolf richter For wolf street,

Lithium is no exception. The spot price of lithium carbonate 99.5% battery grade, trading in Shanghai and serving as a key benchmark, soared as much as 590% in 16 months, and then fell spectacularly in four months. It seems to have found its bottom in the last few days. Like many commodities, it hasn’t dropped back to the starting point of the price increase – at least not yet.

The price hike started in July 2021. At that time, it was trading at 87,000 CNY per ton. On November 11, 2022, it reached 600,000 CNY, a ridiculous 590% gain. Then it lost its grip, speculation intensified, and the price fell 72% in an almost straight line before rising for the first time.

A few days ago, the plunge stopped for a breath at 165,000 CNY. And it took off from there. It had closed at CNY 177,500 on Friday. While it is down 70% from the peak, it is still double July 2021 price (87,000 CNY).

For your entertainment: The previous lithium bubble in 2017, when the price reached CNY 175,000, also burst spectacularly – but slowly. Over the next three years, the price dropped by 77% to CNY 39,800 as of August 2020.

Commodity prices are not driven day-to-day by long-term fundamentals, but by heavy speculation, which can lead to absurd results, such as for futures contracts. Crude oil WTI fell below minus $37.63 per barrel on April 20, 2020 before spiking back up, or lumber futures that rose to ridiculous highs and then collapsed, or Natural gas futures that soared to absurd highs and then fell, Same with lithium.

But fundamentals are consistently cited to support, promote and prolong such price increases. There was a lot of hue and cry in the media. There was going to be a global lithium shortage in the coming years as EV production and sales skyrocketed, and battery cell makers would run out of lithium and not be able to supply battery cells to EV makers.

And true, EV production and sales have skyrocketed, creating a rapidly growing demand for lithium. Tesla’s big price cut aims to grab market share from vehicles with internal combustion engines, But what hasn’t happened is that the world has run out of lithium.

Commodities are in a dynamic world, full of actions and reactions, where higher prices lead to investment in production, which leads to an increase in supply, which fixes higher prices.

All kinds of new lithium mines are being planned and coming on line, and many of these have been in the works for a long time. And suddenly there’s talk of how a global lithium shortage turned into a global lithium glut in the course of four wondrous months.

But it also suggests that price cuts by EV makers — driven relentlessly by Tesla, which has the largest profit margins of any major automaker and can cut prices — may be less difficult for them. This has been because the low price of lithium filters into the low cost of battery cells. ,

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