Lithium is a core component in the production of lithium-ion batteries, which power electric vehicles (EVs) and store renewable grid energy. While lithium is relatively abundant crustally, extracting it in battery-grade purity is complex and highly localized. Australia is currently the leading global producer, while Chile and Argentina hold the largest reserves in salt flats. Due to a temporary slowdown in EV growth rates and a rapid surge in capacity, lithium prices recently plummeted from record highs, leading some mining operations to suspend work.
Despite price volatility, major long-term projects are underway. Opening a new mine is a lengthy process due to environmental regulations and local opposition. In Portugal, a proposed open-cast lithium mine—expected to be the largest in Europe—has been delayed by over eight years due to intensive local campaigns regarding its water usage and ecological impact. The project is not scheduled to begin commercial output until at least 2027.
Governments in developed countries are heavily intervening. The US Inflation Reduction Act has earmarked billions in tax credits and subsidies to accelerate domestic extraction and processing of critical minerals. Similarly, the European Union's Critical Raw Materials Act aims to streamline permitting times for strategic mining projects. With the UK and EU planning to phase out the sale of new petrol and diesel cars by 2035, demand for lithium over the next two decades is projected to increase fivefold, guaranteeing a persistent market.
With reference to Extract A and your own knowledge, assess whether the supply of lithium is likely to be price elastic or price inelastic.
