Demand for electric cars is growing every month and will continue to do so in the coming years. In connection with that, there is a high demand for batteries needed for electric vehicles, hence for the key raw material necessary for their production. Yes, we are talking about lithium. What is new with this commodity and where could the price go in the coming months?

The discovery of a new deposit in Iran

In Iran, mineral extraction is still in the development phase, yet the country is one of the world's most important mineral producers. It is one of the 15 countries with the largest mineral wealth and the latest discovery could be a major boom to its economy as Iran has recently announced that it had discovered a huge lithium deposit in one of its western provinces.

This commodity is irreplaceable in industry in general and also in the production of batteries for electric cars. Demand for lithium is growing steadily and the discovery of a new deposit could reduce its price. The deposit in Iran could allegedly contain 8.5 million tonnes of lithium. If confirmed, it would be the second largest known lithium deposit in the world — after the one in Chile, which contains 9.2 million tonnes of lithium.

The value of lithium

During 2022, we could see a rapid rise in the price of this commodity due to higher demand for electric vehicle components combined with supply chain disruption. However, we have recently seen some decline and correction. This is mainly due to a decline in electric vehicles sales and a slowdown in business activities in China, as this country is the fastest-growing electric vehicles market. Given the size of the discovery in Iran, the price of lithium could fall depending on Iran's export capacity.

High demand for the commodity

Goldman Sachs believes that the supply of the key metal could increase by an average of 34% year-on-year if countries such as Australia and China contribute to global lithium supply. On the other hand, we could see demand rising as electric car sales are expected to rebound, boosted by falling battery prices. The expected increase in supply and overcapacity at the lower end of the market could ultimately depress lithium prices.

The situation in India

This country has also recently discovered a deposit. Lithium reserves in India could reduce the cost of batteries for electric vehicles by up to 7%. The Indian government is aiming for net zero consumption by 2070, which could potentially increase demand for this key commodity. As India plans a gradual transition to clean energy, lithium will play an important role in the expansion of  electric vehicles production and clean energy storage facilities.

Sales of electric vehicles could rise to 80 million in the next 10 years. The ever-increasing investment in India will extend to all aspects of electrification to achieve zero emissions by 2070. This bold plan could have a major impact on long-term investment in this commodity.

Lithium performance over the last 5 years. (Source: Tradingeconomics)*

Adam Austera, chief analyst at Ozios

*Past performance is no guarantee of future results.