In the News Teaching Activity – Market forces caused a price slump in the lithium market in 2023 (Jan 2024)

In 2023 oversupply in the lithium market caused an 80% collapse in prices in the year to December 2023 from $80,000 to $13,600 a ton.

This Forbes article discusses the global scramble for lithium, due to its crucial role in green technologies and advanced batteries. In the race for this "white gold", geopolitical conflicts continue to intensify as nations vie for control of this important natural resource. The lithium market experienced a dramatic 80% drop in prices in 2023, posing a substantial threat to the green energy sector, because lower prices disincentivise supply. The price decline, triggered by human greed and poor planning, raises concerns about the long-term expansion of lithium production. This rapid price crash serves as a stark reminder that the green energy industry is not immune to market forces, emphasising the need for stability and strategic planning to ensure reliable supply of lithium to industries such as the electric vehicle (EV) industry.

Lithium: Price Collapse Secures Green Transition, Causes Headaches (forbes.com)

1 Using a demand and supply diagram, explain why oversupply has caused a fall in prices in the lithium market.

2 How might lower lithium prices affect the profits of an EV-producing firm such as Tesla? Can you draw and explain a diagram to show the impact on profits?

3 Using the concept of price elasticity of supply, explain why commodity markets, such as the lithium market, often have volatile prices.