[2023 Economic Outlook] Soaring Lithium Prices Stabilize... Copper Prices Rise Due to Inventory Shortage

[Asia Economy Reporter Lee Ji-eun] It is forecasted that uncertainty in the mineral market, a representative raw material, will increase further due to the impact of the economic recession next year. The recovery of the Chinese economy and the resolution of the supply crisis are cited as variables.

◆Lithium: Electric Vehicle Demand Slowdown and Oversupply... Price Decline Expected

In the case of lithium, a key material used in electric vehicle batteries, the dominant forecast is that prices will fall next year due to a slowdown in electric vehicle demand and oversupply.

According to the Korea Resources Corporation on the 14th, the international price of lithium (lithium carbonate) recorded 532,500 yuan per ton as of the 13th. This is 1.5 times higher than the previous year (207,500 yuan).

The soaring lithium prices that began at the end of last year continue. At the beginning of January last year, lithium prices were only 48,000 yuan, but after surpassing the 200,000 yuan level in December of the same year, they exceeded 500,000 yuan in October. This was the result of a supply shortage caused by overproduction by Chinese battery companies.

However, the previously rising lithium prices are expected to decline starting next year. Due to the reduction of electric vehicle subsidies by Chinese authorities, vehicle demand is expected to decrease, leading to an oversupply of lithium.

Morgan Stanley predicted that lithium prices, currently staying around 500,000 yuan, will fall to $67,500 per ton (469,884,000 yuan) in the first half of next year and to $47,500 per ton (330,659,000 yuan) in the second half. Goldman Sachs forecasted that the average lithium price next year will drop to $16,000 per ton (111,379 yuan).

◆Copper: Price Rise Expected Due to Inflation Easing Expectations and Inventory Shortage

In the case of copper, the dominant view is that prices will rise due to expectations of easing inflation and supply shortages.

As of May, copper inventory at exchanges reached 180,000 tons, but by the 12th, it had fallen to 84,300 tons. Goldman Sachs predicted that copper prices will rise to $9,750 per ton due to increasing metal demand centered on China, while supply fails to keep up.

This year, copper prices fell to around $7,100 per ton after June as the U.S. Federal Reserve's interest rate hikes and China's zero-COVID policy pushed the economy into a recession phase. However, as inflation rates recently slowed and the Fed is expected to moderate the pace of rate hikes, copper prices surpassed $8,500 on the 11th of last month for the first time in six months.

◆"Increased Supply Leading to Price Drop VS Recovery of Chinese Economy Leading to Price Rise"… Diverging Nickel Forecasts

The price outlook for nickel, one of the important mineral resources, is divided. Nickel, which traded around $20,000 at the beginning of this year, surged 66% in one day on March 7 due to the Russia-Ukraine war, breaking the $40,000 mark. After falling to $19,100 in July, nickel prices rose again due to supply shortages and traded at $29,310 per ton on the 12th.

Following this trend, there is a forecast that nickel prices will continue to rise next year. This is because the easing of China's 'zero-COVID' policy may increase demand for industrial metals in China. Wallet Investor, a price prediction site based on algorithms, predicted that nickel prices will rise to $30,395 next year and continue to soar to $51,778 by 2027.

On the other hand, there are predictions that the price increase will be curbed due to expanded supply from major producing countries such as Indonesia. Indonesia accounts for 40% of total nickel production and has banned the export of nickel ore to develop its domestic industry. Credit rating agency Fitch forecasted that with increased production in Indonesia, nickel prices will fall to $20,000 per ton next year, $17,000 in 2024, and $15,000 after 2025.