Fitch sounds the alarm: The rebound in lithium prices is just a "flash in the pan", oversupply may persist throughout 2026.

Fitch Ratings expects that, despite the price of lithium rebounding to over $11,500 per ton in late November, a 38% increase from the second half of 2025, the weak trend in lithium prices will continue until 2026. Fitch also added that, given the multiple complex factors affecting production in a dispersed and gradually maturing market, the short-term outlook remains uncertain. The organization stated that prices still remain depressed compared to historical highs, causing marginal producers to operate at a loss, but not yet enough to trigger widespread production cuts. Oversupply situation to persist Fitch predicts that unless there is significant and sustained capacity reduction, the lithium market in 2026 will still be in an oversupply situation. Wood Mackenzie forecasts that the surplus of battery-grade lithium chemicals will expand to 153,000 tons (in lithium carbonate equivalent) in 2026, and further increase to 207,000 tons in 2027. At a critical turning point, short-term supply-demand balance depends on supply cuts due to lagging electric vehicle demand and ongoing policy uncertainty. Since the beginning of the year, lithium-related stocks have shown mixed performances. Canadian lithium mine developer Standard Lithium (SLI.US) saw its stock price rise nearly 250%, while larger producers such as Lithium Americas (LAC.US) and Sociedad Quimica y Minera de Chile S.A. Sponsored ADR Pfd Series B (SQM.US) also achieved substantial gains. Industry giants like Albemarle (ALB.US) in the US, however, lagged behind amid weak lithium prices and sector volatility. The Global X Lithium & Battery Technology ETF increased by 56% year-to-date, partly driven by tariff and trade war-related news. Supply chain dynamics According to Fitch, the rapidly changing battery technology market, including alternative materials to lithium, may erode expected stable demand. The organization stated, "China may still be both the largest end market (accounting for 64% of total demand) and the dominant processing center. Although there are new market entrants, including strategic partnerships with governments seeking critical mineral resources, this situation is expected to persist." Capital allocation discipline Lithium producers tracked by Fitch are prioritizing maintaining balance sheet resilience and rating headroom by 2026. Albemarle (rated BBB-, outlook "stable") issued convertible bonds that can be repaid through stock issuance during market upcycles. Sociedad Quimica y Minera de Chile S.A. Sponsored ADR Pfd Series B (rated "AA(cl)") is addressing pressure by slowing growth-oriented capital spending, limiting free cash flow consumption, and issuing hybrid notes. In the meantime, Mineral Resources (MALRF.US) (rated BB-, outlook "stable") sold a 15% stake in its lithium assets to raise cash for early debt repayment and reduce capital expenditure. Merger opportunities? Fitch indicates that the challenging industry environment continues to create opportunities for well-capitalized mining giants seeking diversification or ensuring access to critical mineral resources. For example, Rio Tinto plc Sponsored ADR (RIO.US) has been quite active in lithium project opportunities, currently approaching to be ranked among the top five lithium producers globally and narrowing the gap with Albemarle and Sociedad Quimica y Minera de Chile S.A. Sponsored ADR Pfd Series B.