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The recent outpouring of investment in battery material production has proven to be a double-edged sword for the industry, pushing down critical mineral prices and creating a short-term inventory glut, a recent report from the International Energy Agency finds

The demand imbalance caused battery prices to fall 14% year over year, according to the report. Prices for individual critical minerals plunged even further, with lithium spot prices down 75%. 

New projects in places like China, Indonesia and the U.S. have created supply that has outpaced demand for the past two years, leading to an overstock of products such as battery cells and cathode materials. 

The demand dip shook some investor confidence in the global critical mineral supply chain, hurting industry diversification and long-term production needs.

“If excess production is pushed on to export markets, battery prices and EV prices may fall, which may be good for consumers,” the report said. “However, it could make it difficult for producers globally to compete, increasing the level of supply concentration and exposing the supply chains to various physical and geopolitical risks.”

By the numbers

50%

The portion of forecasted 2035 global lithium demand current supply projections are set to meet

85%

The percent of battery cell production capacity controlled by China

$800B

The amount of critical mineral mining investment needed to meet demand if countries fulfill their climate pledges 

Despite U.S. efforts, China remains the dominant critical minerals player

The Biden administration has made the growth of the U.S. critical mineral supply chain a key aspect of its clean energy transition policy, including billions of dollars in funding and loans for lithium and other battery material projects.

Those efforts, however, have yet to slow China’s dominance in the industry. The country still controls 85% of global battery cell production capacity, and over half of all lithium and cobalt processing still takes place there, according to the IEA. 

The report highlighted that China’s main challenge to maintain dominance will be to find enough export markets — something the U.S. is trying to stop with its recently announced tariffs against China-based EVs, semiconductors and other goods. 

However, U.S. and European manufacturers will need to get more competitive when it comes to battery cell and component pricing and quality if they hope to beat their Chinese counterparts, the IEA noted. 

Don’t be fooled by a short-term demand dip. Supply still needs to grow.

While the past year brought an oversupply of battery materials, the IEA report cautions that such an imbalance won’t last. 

Mineral demand for clean energy technologies is set to double by 2030, based on today’s global policy settings. 

The IEA urged stakeholders to consider alternative battery chemistries, right-sized EV batteries and more recycling initiatives, which combined could reduce lithium demand by 25% in 2030. Without the uptake of recycling and reuse, mining investments would need to grow by a third to meet demand. 

If countries were to meet their announced national climate goals by 2035, the world will only be able to meet half of projected lithium demand and 70% for copper. And in the current highly concentrated market, that supply could be in danger if any of the globe’s top producers, such as China, face a production snag. 

“These high levels of supply concentration raise risks of potential supply developments in a key producing country, with major potential implications for the speed of energy transitions,” the report said. “This analysis underscores the need for concerted efforts to expedite the development of promising projects located in geographically diverse regions.”