How far can this wave of lithium price increases go? Read this article to understand the market logic of lithium mining!

Ask AI · How Will the Explosive Growth in Energy Storage Demand Change Lithium Pricing Mechanisms?

Since the second half of 2025, lithium carbonate prices have rebounded strongly, and the performance of listed companies related to lithium mining has collectively reversed.

How far can this wave of lithium price increases go? How do the investment logic of lithium mining differ from that of 2022?

Huaxia Fund’s official podcast “Talking Money with Dafang” has specifically invited Huaxia Fund fund manager Shi Yunkai, who has been deeply involved in energy metals and the new energy industry chain for many years. He currently manages products such as Huaxia Clean Energy Leader, Huaxia Core Growth, and Huaxia New Starting Point, with in-depth research on lithium mining, energy storage, hydrogen energy, and other areas.

01

Strategic Positioning: Why is Lithium the “White Oil” of the 21st Century?

Question: Recently, a very popular saying has emerged in the market: the great power competition in the 21st century is no longer over oil and gold, but over lithium mines. Why has lithium been elevated to such a strategic position?

Shi Yunkai: This analogy is very vivid. Lithium is called “white oil” mainly because of its chemical properties and irreplaceability. Lithium is element number 3 on the periodic table, with the simplest atomic structure, and among all metals, it has the highest energy density. Losing one electron allows it to complete charge transfer, making energy storage and transmission efficiencies far superior to other metals.

The only element with higher energy density than lithium is hydrogen, but hydrogen is a gas at room temperature and pressure, making it difficult to store, transport, and commercialize, which makes it unsuitable for portable and large-scale energy storage devices. Therefore, in the current industrial system, lithium is the most optimal carrier for large-scale electrochemical energy storage.

Whether it’s new energy vehicles, energy storage power stations, drones, low-altitude economy, or various portable power sources, they all rely on lithium batteries. Comparing with other technical routes such as sodium batteries, zinc batteries, and lead-acid batteries, their energy densities are significantly lower than lithium batteries. Especially in scenarios with high requirements for endurance, weight, and volume—like new energy vehicles, long-duration energy storage, and high-end equipment—lithium batteries are almost the only choice. This is the strategic value of lithium—it is the fundamental energy material in the electrification era.

Question: Can you systematically explain what types of lithium deposits there are?

Shi Yunkai: Lithium resources are very clearly categorized into two main types: salt lake type and hard rock mineral type.

The first type is lithium extraction from salt lakes. Lithium dissolves in the brine of salt lakes as ions, not as solids. The extraction process is more like “solar salt production,” involving sun-drying, concentration, adsorption, and extraction to separate lithium. The world’s most high-quality salt lakes are concentrated in the South American Triangular Area—Chile, Argentina, and Bolivia. Domestically, they are mainly in Qinghai and western Tibet. The key feature of salt lakes is: once the extraction process is breakthrough, the cost is very low, but the difficulty lies in the fact that each salt lake’s composition, magnesium-lithium ratio, and ion concentration are completely different. The industry calls this “one lake, one policy,” with no unified standard.

The second type is mineral extraction. It exists as solid mineral deposits, mainly in three forms: spodumene, lepidolite, and petalite. Among these, spodumene has the highest grade and extraction efficiency, making it the most mainstream raw material for lithium extraction globally; lepidolite has a slightly lower grade; petalite has the lowest grade and more impurities, making it high-cost capacity, usually only economically viable when lithium prices are high.

Whether industrial-scale mining is feasible depends on two key indicators: first, lithium concentration—if too low, it’s not economical; second, magnesium-lithium ratio—since magnesium and lithium have very similar chemical properties, high magnesium content makes separation difficult and costly. Salt lake extraction is very challenging; before 2020, many companies in salt lakes struggled due to very low lithium prices, making operations difficult, leading to many being ST (special treatment). But later, it became “one lake, one policy,” because each lake’s composition is entirely different. Once the extraction technology is breakthrough or suitable methods are found, the cost of lithium extraction from salt lakes is often the lowest among all lithium sources, making it the most cost-effective.

Question: Is the supply of lithium concentrated or dispersed?

Shi Yunkai: Lithium supply is extremely dispersed. No single lithium mining company or country can dominate the supply; no single mine accounts for more than 10%. Even a small disturbance can cause lithium prices to spike rapidly, which is the real catalyst behind recent market movements.

02

Global Landscape: Lithium is Not Scarce

Question: Many investors, upon hearing “substitute for oil” and “strategic metal,” think lithium must be a scarce resource. From a global reserves perspective, is lithium really scarce?

Shi Yunkai: I can say very clearly: lithium is not scarce globally. The crustal reserves are very large, unlike rare earths, cobalt, or nickel, which are highly concentrated. The issue is not “whether it exists,” but “how easy it is to mine, whether it can be mined at low cost, and when it can be released.”

From the distribution of reserves: the largest lithium resources are in the South American salt lakes; China’s lithium reserves account for only about 10% of the global total, which is not high. Currently, the overall lithium supply mainly comes from three regions: first, China’s salt lakes and lepidolite, with Jiangxi being a major area, and some mineral deposits in western Sichuan; second, South America, mainly salt lakes with very low costs and large reserves; third, Africa and Australia, mainly mineral deposits with higher grades and faster extraction pace.

A very critical conclusion is: China is a strong country in lithium processing and application, but not in lithium resource endowment.

Looking at the entire lithium battery industry chain, if we compare the full industry chain controlled by Chinese enterprises or segments, we find that China holds very strong influence in the mid-to-lower reaches. For example, over 80% of new energy vehicles, power batteries, and energy storage batteries are produced by Chinese companies globally; over 80% of the cathode, anode, separator, and electrolyte materials are supplied by China; but in the upstream lithium carbonate segment, there is some dependence on imports. Although some lithium carbonate is produced domestically, lithium mining itself is one of the few segments with relatively high import dependence. That’s why, whenever lithium prices rise, market sentiment often worries that the entire industry chain’s profits are being captured overseas. This is also why lithium prices are very sensitive to market sentiment.

03

Pricing Mechanism:: Lithium Carbonate Futures as the Global Benchmark

Question: Are lithium stock prices closely related to upstream lithium mining prices?

Shi Yunkai: Since the second half of last year, the trend of lithium mining stocks has been highly synchronized with lithium prices.

The lithium carbonate futures market is very mature. In July 2023, lithium carbonate futures were listed on the Guangzhou Futures Exchange, and it has been operating very smoothly since. The global benchmark for lithium carbonate pricing is mainly based on the spot prices or average prices over a period from China’s futures exchanges, making the overall lithium element pricing very transparent. The profits of various intermediate processing segments are quite clear.

Therefore, whenever lithium carbonate prices rise, it directly transmits to resource prices. The core of listed companies’ performance depends on their resource holdings, which can be reflected through lithium carbonate prices.

This is also why the lithium sector has a very high beta attribute: once the price trend is established, the entire sector tends to follow.

Question: Is lithium carbonate a consumable product?

Shi Yunkai: Lithium carbonate is a raw material at the very top of the battery industry chain. A typical battery is made of four main materials: cathode, anode, separator, and electrolyte. The separator and anode do not contain lithium; the cathode and electrolyte contain lithium compounds, such as lithium iron phosphate for cathodes or lithium hexafluorophosphate in ternary electrolytes. Both lithium-containing components are made from lithium carbonate, so lithium carbonate is a key upstream raw material for battery manufacturing. The supply and demand of lithium carbonate are roughly in a 1:1 relationship with lithium battery demand, as other fields use relatively less lithium. However, there are some annual variations.

04

Why Did Lithium Mining Stocks’ Performance Reverse? What Are the Core Drivers?

Question: Recently, lithium mining companies released annual and first-quarter reports, with performance reversing significantly and surpassing market expectations. What is the core driver of this reversal?

Shi Yunkai: Let’s review the lithium price trend for all of 2025. Last year, in the first half, lithium carbonate prices were around 70k yuan/ton. By April, due to tariff impacts and especially the export energy storage expectations being somewhat revised downward, market sentiment was pessimistic, and lithium carbonate prices fell to over 60k, even as low as early 50ks. But from the third quarter onward, prices recovered from the lows of over 50,000, rising steadily with some fluctuations, reaching nearly 150k by the end of the year.

The core driver of this rally was explosive growth in energy storage demand. The root cause was the implementation of our country’s power market reform policies, especially the release of Document No. 136 at the beginning of the year.

Before the issuance of Document 136, the logic for energy storage in China was mandatory pairing, with wind and solar grid connection prices close to fixed rates. Wind and solar resources were highly valuable, and energy storage was just a cost center. After the release of Document 136, two major changes occurred: first, the grid connection prices for wind and solar became fully market-based, no longer fixed. During midday, solar power generation is concentrated, with very low electricity prices, even negative prices; at night, peak prices are high, and intra-day price fluctuations are large. Second, mandatory pairing was completely canceled, and local governments were prohibited from implementing mandatory pairing policies.

At that time, everyone was worried: would market-based wind and solar prices lead to a decline in installed capacity? Would canceling mandatory pairing mean no one would install energy storage?

In Q1 2025, both the capital markets and industry were extremely pessimistic about energy storage, which directly depressed lithium carbonate prices. Coupled with tariff disruptions in April, lithium prices remained very low in the first half.

The turning point came in the third quarter. Various regions introduced energy storage capacity compensation policies, effectively providing direct subsidies to energy storage stations, significantly improving their economics. Energy storage transformed from a cost center to a profit center. Its revenue now comes from two parts: first, arbitrage between peak and valley prices—midday prices as low as 0.1 or 0.2 yuan/kWh, even negative; evening peak prices at 0.5 or 0.6 yuan/kWh. Charging at low midday prices and discharging at high evening prices is like stock trading—buy low, sell high. Second, capacity compensation (capacity price) is akin to fixed phone fees—if your station exists and can improve grid stability, you get a steady income.

Driven by arbitrage and subsidies, the IRR (internal rate of return) of energy storage stations has soared, shifting from “I need to invest” to “I want to invest.” Previously, it was “install as much wind and solar as possible, with some energy storage”; now, it’s “if energy storage can make money, I’ll install as much as possible.” The entire industry has shifted from planned support to a high-growth, capital-driven track.

In industry chain tracking, we found a surprising fact: demand for energy storage batteries has not only not collapsed but has exploded, even locking in capacity for 2026 ahead of schedule. The proportion of energy storage in overall lithium battery demand has jumped from 10-20% to the leading growth driver. This epic expectation gap directly pushed lithium carbonate from the low of 50,000-60k yuan/ton up to around 150k, also causing a performance reversal in listed companies.

Question: Has this wave of lithium price increase from the bottom to around 150k yuan already overdrawn the growth expectations for this year and even next year?

Shi Yunkai: Indeed, current lithium prices have partially or significantly reflected the high prosperity of energy storage. But why did lithium prices rise from over 60k to 150k and then enter a consolidation phase, rather than soaring to 600k like the last cycle? The core reason is that — energy storage stations are heavy asset investments, akin to public utilities, extremely sensitive to costs.

The initial investment of energy storage stations largely includes land, infrastructure, and lithium batteries. The cost of lithium batteries directly correlates with lithium carbonate: a 10k yuan/ton increase in lithium carbonate price results in roughly a 0.6% increase in energy storage cell costs. This round of prices rising from around 60k to nearly 160k yuan/ton has increased the cost of energy storage cells by more than 6 to 7 cents. This means the initial investment cost of energy storage stations has significantly increased.

However, on the revenue side, there has been no corresponding increase: arbitrage profits from peak-valley price differences, capacity payments, and various subsidies have not risen substantially. More importantly, peak-valley price differences tend to be “compressed”—as more energy storage stations participate in arbitrage, with more charging at midday and discharging at night, the price gap narrows, and profits are diluted.

This creates a negative feedback loop: higher lithium carbonate prices → higher energy storage cell costs → lower station profitability → some projects become unprofitable → demand shrinks.

This mechanism means that when lithium prices reach around 150k yuan, some energy storage stations lose economic viability, demand begins to be suppressed, and prices fluctuate within a 150k–200k yuan range. A full review of this cycle shows that from the first half of 2025 until now, lithium pricing has undergone a fundamental shift—from being cost-driven to demand-driven.

05

How Does This Wave Differ from 2022?

Question: Many veteran investors compare this wave to lithium prices soaring to 600k yuan/ton in 2022. What are the fundamental differences between these two rallies?

Shi Yunkai: The two cycles are driven by entirely different factors, with different pricing models and top-end potential.

The last cycle was driven by explosive growth in new energy vehicles, causing lithium prices to skyrocket. In 2019, the entire industry was deeply loss-making, with many companies being ST (special treatment). This was the bottom before the last cycle. The turning point was 2020, when lithium carbonate prices bottomed at just over 30k yuan/ton. At that price, almost all mineral lithium extraction was barely profitable or at a loss; even some salt lake lithium operations struggled to generate positive cash flow. But companies like Tesla directly increased the penetration rate of new energy vehicles. In 2021 and 2022, new energy vehicles entered a explosive growth phase. By 2022, downstream battery and midstream material capacities expanded rapidly, but upstream lithium mining was severely tight.

So, in 2020, demand exploded, and mid-to-downstream capacity expanded immediately, but upstream supply could not keep up. As a result, lithium prices broke through 200k yuan before the Spring Festival, surged to 400,000–500k yuan in August-September, and hit a peak of 600k yuan/ton in November. During that period, the new energy vehicle industry was in a wild growth phase, with subsidies, fierce competition among new entrants, and a logic of prioritizing supply security and profit second. The lithium carbonate price increase directly caused the cost of single batteries to rise by several tens of thousands of yuan, but at that stage, automakers “could afford to lose money,” willing to bear high prices to secure capacity, pushing lithium prices far beyond costs.

However, a turning point occurred in early 2023: the car market entered a seasonal slowdown, and capital markets became rational again. Companies prioritized profitability, and the growth rate of new energy vehicle sales slowed. Meanwhile, the mines planned around 2020-2021 gradually came online, greatly increasing supply. By 2023, lithium prices plummeted from over 600k to around 150k yuan, with a seasonal rebound to 300k. In July, lithium carbonate futures were listed on the Guangzhou Futures Exchange, making price signals more transparent. The market quickly realized that in 2024-2025, the growth of new energy vehicles would further slow, while supply was still expanding rapidly (annual growth over 40%), leading to oversupply. Prices fell from over 200k to 80–100k yuan by January 2024, before some capacity reduction news emerged.

But the current wave of market transmission since late last year is entirely driven by energy storage prosperity from the top down.

From 2024 to early 2025, lithium demand remains dominated by new energy vehicles, with energy storage accounting for only 10–20%. But after Q3 2025, energy storage demand, which had been declining or stagnant, suddenly doubled, reversing the entire supply-demand landscape. Energy storage could then account for about 30–40% of total lithium battery demand, transforming from a small share into the main growth driver of this cycle.

At this point, many variables come into play. On the demand side, energy storage demand is expected to nearly double this year. But whether it can sustain high growth into next year is uncertain; industry cycles often fluctuate, and most forecasts for 2026 are very optimistic. However, expecting demand to remain strong through 2027 and 2028 is still questionable.

Question: When discussing resources like gold or non-ferrous metals, we often mention the “price center” problem. Does lithium have a “price center”?

Shi Yunkai: Lithium is a highly volatile, long-cycle commodity. It has two “centers”:

First, the demand-side pricing center: driven initially by new energy vehicles, which can push prices to 60,000 yuan/ton; then by energy storage, which could reach 150,000–200,000 yuan/ton; the next wave might depend on solid-state batteries and new applications.

Second, the cost-based pricing center: once entering an oversupply cycle, prices tend to fall back to the cost line. In 2019, it dropped to over 30k yuan; in 2025, it fell to 50,000–60,000 yuan; in the next oversupply, prices are likely to bottom near the cost line again.

Question: Will solid-state batteries be the next driver for lithium?

Shi Yunkai: Solid-state batteries could indeed become the main demand driver in the next lithium cycle, but we must be rational and cautious.

The key point is: can solid-state batteries be mass-produced and put into vehicles before 2030? Our in-depth research indicates there is still significant uncertainty.

Currently, the scientific principles of solid-state batteries are largely resolved, but engineering and mass production challenges remain huge. Yield, costs, consistency, manufacturing equipment—all are hurdles. Even if they are developed, whether their performance fully surpasses current liquid batteries is still uncertain. So, whether solid-state batteries will truly scale before 2030 requires ongoing monitoring, not premature conclusions.

Second, if solid-state batteries do break through, even at 10–20% penetration, the demand for lithium will be enormous. Our estimates show that for the same 1 GWh of batteries, solid-state batteries would require nearly double the lithium. Large-scale adoption of such batteries would be a new, massive demand wave.

In summary: solid-state batteries are a “long-term bullish option” for lithium in the next cycle, but not the current market logic. They determine demand over a decade, not short-term prices.

06

How Should Ordinary Investors Position Themselves?

Question: Recently, lithium-related stocks have surged significantly. What common features do the most rising companies share?

Shi Yunkai: From the second half of last year’s market, the stock performance across the lithium industry chain has been highly differentiated, with clear phases.

In the first phase, as expectations for energy storage emerged, the market believed supply and demand were not yet tight enough to cause shortages in midstream materials or upstream lithium carbonate, so profits were expected mainly in the battery segment, including energy storage station construction and system integration. We saw that early on, stocks of mid-to-lower stream energy storage system suppliers and battery suppliers led the gains.

But after these stocks rose, and industry prosperity continued, the market realized that midstream materials were becoming tight. Especially lithium hexafluorophosphate and key auxiliary materials like VC (electrolyte additives), which saw large price increases. At this stage, the market believed that the prosperity could support a big rally in midstream materials.

By Q4, supply-demand tensions shifted further upstream, focusing on lithium carbonate. Supply disruptions and shocks then pushed lithium carbonate prices sharply higher.

Question: Lithium prices are already quite high. Do you have any investment advice?

Shi Yunkai: Investing in lithium mining stocks now is a classic high-elasticity, high-risk stage. You must recognize their high volatility and avoid chasing highs.

Long-term, the mismatch between supply and demand for lithium is likely to persist through 2026, possibly extending into 2027 or 2028. So, when lithium prices are high, any supply disruptions or temporary corrections could present good entry points.

But chasing during rapid price surges driven by supply news or demand spikes often doesn’t work well. From a medium- to long-term perspective, current lithium prices are already at medium-high levels. Therefore, it’s crucial to assess the medium-term position before acting.

The best indicator is the real-time price of the main contract of lithium carbonate futures on the Guangzhou Futures Exchange; most lithium mining stocks tend to move in close correlation with it.

Another logic: if oil prices continue to rise sharply, it would further benefit the substitution demand for new energy vehicles, possibly pushing lithium prices higher. But there are still many uncertainties. Given that lithium prices are already high in the long cycle, for long-term allocation, we recommend dollar-cost averaging, as the current level is in the mid-to-high range of the cycle.