From oversupply to "energy storage frenzy", will the lithium investment boom come back?

Recent industry research reports and the latest lithium market statistics show that the global lithium industry, which has been continuously impacted by "oversupply" since 2022, is bravely expanding under the unprecedented AI boom to meet the large-scale battery energy storage demand. This has completely reversed the long-term pessimistic pricing trend of lithium metal trading markets and stocks closely related to lithium in stock markets, which were previously disturbed by anxiety over oversupply on the supply side. This wave of demand expansion is pushing lithium prices and lithium sector stock prices towards a new bull market. The most active futures trading contract for lithium carbonate, a core material in electric vehicle batteries, continued to rise in early trading on Tuesday at the Guangzhou Futures Exchange, jumping by about 5% the previous trading day. After experiencing a recent uptrend, the spot price of lithium carbonate is currently at its highest level since late August, but still down by over 85% from the historical peak reached in 2022. In the stock market, boosted by the strong energy storage demand driven by the recent AI boom and the domestic policy tone of "anti-internal competition," lithium sector stocks globally have seen significant increases. Stocks of SQM, which owns one of the world's largest lithium mines, have surged by over 20% since October. Several popular lithium sector stocks in the Chinese A-share market have seen consecutive daily limit up movements. "We believe that the recent surge in lithium prices is mainly driven by strong demand rather than potential supply interruptions," said a team of analysts from Citigroup in a research report released on November 9. "As time goes on, we have more confidence in the strong battery energy storage demand that may occur in the coming years." As shown in the chart above, lithium prices have continued their strong upward trend recently. As the market's focus shifts from supply concerns to a close focus on the outlook for energy storage demand in the industry, prices of core materials for energy storage batteries have also surged. Observers of the lithium market have shifted their focus from supply concerns to energy storage demand in recent months. The market has been experiencing extreme volatility in trading prices, with a mine managed by the world's largest electric vehicle battery manufacturer, Contemporary Amperex Technology, on indefinite shutdown, attracting market attention. Currently, the market's focus has shifted from the supply side to the demand side. "Top producers of lithium iron phosphate (LFP) cathode materials are mostly running at full capacity driven by energy storage demand," a senior analyst from the Fubao lithium department under Sublime China Information Co. stated. "Looking ahead, a strong performance in energy storage systems (ESS) is expected to support long-term strong demand for lithium carbonate, but industry participants need to closely monitor how this strength and sustainability will be reflected in the lithium trading market," the analyst said. With the unprecedented AI boom driving massive demand for electricity resources, government policy incentives, economic improvement expectations, and expansion plans for electric vehicles, market confidence in the strong demand for energy storage systems (ESS) continues to grow. According to Citigroup's data, ESS will play an increasingly important role, with its share of total global battery demand expected to increase from about 20% last year to over one-third by 2030. "We acknowledge that there are limited forward-looking indicators for ESS demand from a historical perspective," wrote Citigroup analysts. "However, we believe that global capital flows are unlikely to be wrong." The team of analysts at Citigroup expects global battery demand to increase by a significant 31% by 2026, with ESS and electric vehicle (EV) demand expected to increase by 45% and 26%, respectively. These analysts added that the potential full restart of Contemporary Amperex Technology's large mine "is unlikely to change the strong destocking trend." However, some analysts have warned that the current rapid rise in lithium prices may be too fast. A senior analyst from China Futures Co. said, "The current upward trend in lithium prices is too rapid in the short term, and there is a risk of a significant correction if sentiment reverses. The main trading logic is focused on the stronger energy storage demand expected in 2026, but the lithium market may still not experience a severe supply shortage next year." Riding the AI super trend: "Lithium" When we mention "battery storage," the vast majority of new storage projects choose lithium batteries, locking lithium in the position of the "biggest beneficiary" in the global energy storage technology route. The latest report from the IEA shows that lithium-ion batteries account for almost all electric vehicles and new energy storage projects. The CECEP Solar Energy industry association in the United States stated that lithium batteries are the main form of storage for current renewable energy projects, and global demand for lithium battery storage is expected to explode in the next decade. The efficiency of lithium battery energy storage circuits is usually above 85%-90%, with a very fast response time in milliseconds, making them particularly suitable for peak shaving, frequency regulation, and backup power. While technologies such as flow batteries, sodium-ion, and compressed air may have potential in certain segments of "long-term storage," they lag far behind lithium in terms of scale, cost, and acceptance in the capital market, making it difficult to challenge lithium's dominant position in the short to medium term. With the rapid expansion or construction of global AI data centers led by Microsoft, Google, and Amazon, these data centers are experiencing significant increases in electricity demand. As a result, the lithium industry has become a major beneficiary of the AI boom. This is mainly due to the large-scale increase in electricity demand at the level of the power system brought about by AI data centers, leading to an exponential increase in demand for energy storage and flexible power resources. A forecast report from the International Energy Agency (IEA) shows that by 2030, the electricity demand of global data centers will more than double, reaching approximately 945 terawatt-hours (TWh), slightly higher than Japan's current total electricity consumption. Applications of artificial intelligence are expected to be the most important driver of this growth; it is predicted that the overall electricity demand of data centers focusing on artificial intelligence will increase by more than four times by 2030. Electric grids in many parts of the United States are already facing greater pressure due to the 24/7 operation and large power consumption of AI/HPC data centers. Most regions are planning to address peak load issues through widespread deployment of battery energy storage systems and flexible demand response. There is a growing trend in many power construction projects to use large-scale battery storage systems to replace or supplement diesel generators, enabling instantaneous switching, peak shaving, and grid upgrading. A recent research report from UBS, a global banking major, shows that battery energy storage systems are becoming the "second-largest growth engine" for lithium demand, comparable in importance to lithium for electric vehicles. UBS predicts that by 2030, storage demand will account for close to 30% of total battery demand, transitioning from a "marginal variable" to a "core variable." UBS emphasizes that behind this demand explosion is a massive electricity supply gap brought about by global energy structure changes. For example, driven by the immense power consumption of AI data centers, the annual growth rate of electricity demand in the United States is expected to reach 3%. However, the construction cycle of new power infrastructure is lengthy, ranging from 7 to 10 years. In this context, energy storage systems have become the only practical option to bridge this significant electricity gap. As the addition of new power generation capacity cannot immediately keep up, UBS points out that energy storage systems will become a key "bridge solution" for balancing the grid, integrating renewable energy, and bridging the electricity supply-demand gap in the United States over the next 7 to 10 years. UBS analysts predict that global demand for energy storage will significantly increase from 396 GWh in 2026 to 873 GWh by 2030. This means that the compound annual growth rate (CAGR) from 2025 onwards will reach a high of 24%. This latest demand shock, combined with major disruptions on the supply side, may lead to a rapid shift from the 55,000 ton minor oversupply predicted by UBS in 2026 to a supply shortage in the lithium market. Therefore, UBS predicts that lithium prices have bottomed out and will begin a steady upward trend.