Lithium price: BMI raises forecast, warns rally has outrun fundamentals

Lithium prices have surged, with BMI raising its forecast for 2026, predicting an average of $20,100 per tonne – nearly double last year's average. The increase is attributed to persistent supply disruptions and growing demand, particularly from the energy storage sector. However, BMI argues that the current prices exceed what fundamentals alone would justify and expects a pronounced decline in the months to come.

Despite this, the firm forecasts a gradual recovery, with global lithium production growing by 13.2% this year, led by Australia and China. The surplus, it warns, will only become apparent closer to 2027 as underinvestment and project delays finally catch up with supply growth. The lithium market remains in surplus through the end of the decade, only tipping into deficit over 2031 to 2035.

A major factor that could alter this forecast is the potential restart of Jianxiawo mine in China, which could supply around 3% of global lithium. However, the mine's environmental impact assessment is still pending approval, and Benchmark Mineral Intelligence warns that a prolonged delay could wipe out this year's surplus. Additionally, winter disruptions in Argentina have affected operations at Rio Tinto's Fenix operation, adding to the market's uncertainties.

While demand for lithium is expected to rise, BMI sees a slowdown in global demand growth, with EV sales growth expected to slow to 3.9% and China's electric vehicle market facing a structural deceleration. The rise of lithium iron phosphate chemistry and advancements in battery recycling also pose a downside risk to the current lithium price forecast.