| Year | Surplus/Shortage (thousand tonnes LCE) |
|---|---|
| 2018 | 10 |
| 2019 | 15 |
| 2020 | 5 |
| 2021 | -12 |
| 2022 | -25 |
| 2023 | 35 |
| 2024 | 20 |
| 2025 | 5 |
| 2026 | -8 |
| 2027 | -15 |
| 2028 | -20 |
| 2029 | -22 |
| 2030 | -25 |
Lithium is a core component in the manufacture of lithium-ion batteries. In 2023, the price of lithium carbonate collapsed to a 3-year low, contrasting sharply with the record-high commodity prices of previous years. Lithium extraction historically required long lead times, but a massive surge in global capital investment meant that Australia and Chile successfully ramped up spodumene and brine operations. More significantly, non-traditional extraction of low-grade lepidolite in China expanded rapidly, contributing heavily to the eventual supply surplus.
The decline in price was also driven by shifts in downstream consumer demand. In early 2023, China ended its national consumer subsidy program for electric vehicles (EVs), which had run for over a decade. This policy change, combined with elevated inflation and higher borrowing costs in Europe, caused EV purchasing growth to slow down compared to earlier forecasts. Consequently, battery manufacturers cut back domestic orders and drew down their existing massive stockpiles of lithium rather than buying new raw supply at elevated spot prices.
Despite this immediate setback, developers are continuing to invest in long-term supply solutions. Europe's first major lithium refinery is under construction in Germany to support regional automakers. Governments worldwide are heavily subsidising domestic battery supply chains, such as the US Inflation Reduction Act which provides billions in tax credits. Thus, despite temporary oversupply, long-term demand over the next decade remains highly anticipated by most analysts.
With reference to Figure 1 and Extract A, explain why the price of lithium carbonate has 'collapsed to a 3-year low' (Extract A, lines 1 and 2) in 2023. Include a supply and demand diagram in your answer.
