Excess of lithium - "life-saving straw" arrives? The rise of energy storage becoming a new demand pillar, with a potential shortage reversal by 2026.

Bullish on the lithium market are betting that energy storage systems will become the next important pillar of battery metal demand, driving the global market towards rebalancing after years of oversupply. Large utility-scale batteries that can absorb, store, and control the release of electricity are increasingly becoming an important consumer area for lithium. While electric vehicles are currently the largest user of lithium metal, many analysts predict that by 2026, the growth rate of demand from these energy storage systems will surpass that of electric vehicles. Citigroup, UBS Group, and Bernstein even believe that this expansion will help drive the global market towards a shortage next year. Chris Williams, an analyst at industry consulting firm Adamas Intelligence, stated that the relative maturity of electric vehicle applications means that the growth in energy storage demand is "still the biggest variable" for battery production (and lithium demand) by 2026. For the past three years, the global lithium market has been plagued by oversupply, as the growth in demand for electric vehicles has been lower than expected and unable to keep up with the expansion pace of new mine capacities. Spot prices have fluctuated dramatically this year, rebounding by about 50% from the four-year low point in June, but still less than one-sixth of the end-of-2022 price. While the electric vehicle industry continues to expand, it is facing challenges such as the maturation of the Chinese market and uncertain sales prospects in the United States. In the United States, as part of the gradual phasing out of incentives for electric vehicle production, Donald Trump has taken measures to relax stringent fuel efficiency standards. Western car manufacturers have also been reevaluating their strategies. Meanwhile, battery energy storage is becoming an important driver of lithium demand. On one hand, the costs of building utility-scale batteries have declined in recent years. This economic improvement, along with policy requirements to integrate more clean energy, helps to expand storage capacity. The construction of a large number of new data centers is also a driving factor, as they require a stable and sufficient power supply to flatten peak electricity demand. UBS analysts stated that China is expected to surpass a new target of cumulative energy storage capacity of 180 GW by 2027, while in the United States, such energy storage systems are seen as "an attractive solution to the increasingly growing imbalance between power supply and demand." Their data shows that demand for lithium in this sector could grow by 55% next year, while growth in the electric vehicle sector is only 19%. Other industry observers are more cautious. Martin Jackson, Battery Materials Market Director at consulting firm CRU Group, stated, "We still predict that supply will exceed demand growth next year," adding that some optimism has been "dangerously exaggerated." He pointed out that the number of batteries manufactured for energy storage systems is "extremely mismatched" with installation speed. On the supply side, China, Australia, Argentina, and some African countries have all claimed new mining capacity expansions. Executives from many Chinese producers have recently made bullish statements. Jiang Anqi, Chairman of Tianqi Lithium Corporation, expects the market to balance by 2026, citing energy storage as one of the reasons. He Jiayan, Vice President of Ganfeng Lithium Group, stated that the energy storage boom exceeded expectations. Bernstein analysts stated that supply cuts along with strong demand are helping to drive the market towards a more balanced state. In a report, they wrote, "This year represents the bottom," and "we expect the lithium market to tighten in 2026 and 2027."