Price Bubbles in Lithium Markets around the World

Abstract

The global energy transition to low-carbon technologies for transportation is heavily dependent on lithium. By leveraging the latest advances in timeseries econometrics we show that lithium prices (carbonate and hydroxide) have recently experienced market bubbles, particularly from the end of 2015 to the end of 2018, although in the case of European hydroxide we also date a bubble as recently as September 2020. Bubbles are accompanied by market corrections and extreme uncertainty which, in the case of lithium, may put at risk the future continuous supply needed for manufacturing lithium-based batteries for the electric vehicle. Governments and private stakeholders could reduce uncertainty imposed by these speculative dynamics, for instance, by establishing public stabilization funds and setting up capital buffers that help to diversify operational and market risks induced by a bubble bursting. Such funds should be ideally located in portfolios, such as the global stock markets or other energy commodities, which exhibit idiosyncratic bubbles unsynchronized with the bubbles observed in lithium Markets