As oil, copper and other commodities rebound from their coronavirus slump, a metal that powers electric vehicles has been left in the dust. That could change, as lithium is poised to benefit from stimulus packages that aim to reduce greenhouse-gas emissions.
Prices for compounds of lithium, a silvery metal that goes into lithium-ion batteries, have kept grinding lower after the pandemic knocked car sales world-wide.
The price of lithium carbonate, produced from salt lakes in Chile and Argentina, dropped 42% in May from a year earlier to $6,582 a metric ton, according to Benchmark Mineral Intelligence. Lithium hydroxide, found in rocks known as spodumene in Australia and favored for batteries that power longer-distance vehicles, fell 34% to $8,975 a ton.
The market will keep retreating through the third quarter, according to Citigroup analyst Harsh Bardia, extending a bust that began in 2018 after rising prices prompted a surge in new production. The glut of metal expanded last year when China scaled back subsidies for electric vehicles, eroding lithium demand in the world’s largest automotive market.
The manufacturing recession caused by the coronavirus has added to the pressure on lithium. Around two-fifths of demand comes from industries including glass and ceramics, as well as the production of lubricants for heavy machines, according to Mr. Bardia.
The pandemic has delayed the moment when growing sales of electric vehicles outside China whittle down the lithium surplus. But stimulus measures could lead to higher long-term demand for battery metals, prompting an increase in prices to incentivize new production, analysts said.
“Some of that regional diversification has been knocked back,” said Andrew Miller, product director at price-reporting agency Benchmark Mineral Intelligence. “The flip side, and you’re seeing this in France and Germany, is that the economic stimulus that’s been put in place is very much going to be geared toward electrification and green-energy initiatives.”
A €130 billion ($147 billion) spending package adopted by Germany in early June increased subsidies for the purchase of electric vehicles. It offered no incentives for buying combustion-engine cars. In France, the state boosted its rebate for buying an electric vehicle to €7,000 from €6,000 as part of a multibillion-euro effort to prop up the car industry.
Unlike oil or copper, lithium lacks a futures market that investors can use to wager on the direction of prices. The London Metal Exchange’s plan to introduce a lithium futures contract has faced delays, partly because of disagreement among producers about whether lithium is a commodity or a chemical.
Investors seeking to benefit from a rise or fall in lithium prices do so by betting on shares in major producers, which have rallied. Shares in North Carolina-based Albemarle Corp. have gained 32% since the end of March, while American depository receipts of Sociedad Química y Minera de Chile SA, known as SQM, have climbed 15%.
Porsche’s production line in Stuttgart, Germany. Demand for electric-vehicles in Europe has increased during the pandemic.
Photo: Marijan Murat/Zuma PressIn Europe, electric-vehicle demand showed traction during the worst of the region’s epidemic. That is one reason why analysts have lifted their outlook for lithium demand in the coming years.
Whereas auto sales overall sank by 78% in April from a year earlier, demand for plug-in vehicles fell by just 16%, according to commodities research firm CRU Group. As lockdowns were eased in May, sales of electric vehicles jumped by 77% from a year before in France, and by 56% in Germany.
“It’s astonishing it has that kind of resilience,” said George Heppel, an analyst at CRU. “The big driver for this has been the change in subsidies.”
Global lithium demand will probably rise from 336,000 tons this year to 823,000 tons in 2025, according to Mr. Heppel. The price of lithium carbonate will climb back above $10,000 a ton by 2023, he estimated, making it economic to reboot mines that are currently idled and to start investing in new lithium projects.
Elsewhere in commodities, oil prices wavered Monday as traders questioned whether a jump in coronavirus cases in the U.S. would put the brakes on a nascent recovery in fuel demand. Brent crude futures, the international benchmark in energy markets, clawed back overnight losses to trade 0.2% higher at $41.02 a barrel.
Write to Joe Wallace at Joe.Wallace@wsj.com
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