UBS Group AG has announced significant upward revisions to its lithium price forecasts, with increases of up to 74%, and projects that global lithium demand will double from 2025 levels to 3.4 million tonnes by 2030. This marks the onset of a third major lithium price cycle following two previous ones.

The adjustments are based on a comprehensive reassessment of global electric vehicle and energy storage system demand, a revised supply outlook, and the fact that lithium prices have risen approximately 65% since the bank's last update. Analysis from UBS's Q-Series report by its automotive and battery team on the 5th indicated that electric vehicles are nearing a "triple parity" in cost, range, and charging time. Their teardown of five EV batteries revealed that battery costs have dropped by about 50%, and lower costs are expected to drive stronger demand.

UBS has raised its spodumene price forecast for 2026 by 74% to $3,131 per tonne. Prices for lithium carbonate and lithium hydroxide were both increased by 58% to $26,000 per tonne. The 2027 spodumene price forecast is $3,469 per tonne, 22% higher than previous expectations. These forecasts are substantially above market consensus, reflecting UBS's view of a tight supply-demand balance.

Falling lithium inventories in China are providing support for rising prices. Data shows a significant decline in China's lithium carbonate inventories by the end of 2025, with months of inventory notably reduced, indicating a tight supply chain. Concurrently, the market experienced a supply shortfall in 2025, leading to continued inventory drawdowns.

Demand Drivers: EVs and Energy Storage UBS forecasts global lithium demand growth of 14% in 2026 and 16% in 2027. Long-term, demand is projected to double from 1.7 million tonnes in 2025 to 3.4 million tonnes by 2030, representing a compound annual growth rate of 13% through 2035.

Electric vehicle demand maintains a robust growth trajectory. UBS's research highlights two key conclusions: first, EV sales are expected to re-accelerate in the medium term. Although recent global EV growth may lag behind the five-year CAGR of 13% due to potential policy shifts in the US, achieving "triple parity" is anticipated to spur accelerated sales growth towards the end of the decade. UBS projects global EV penetration will reach 58% by 2035, up from 23% in 2025. Second, Chinese automakers are set for continued ascendancy, demonstrating strongest competitiveness in the mass-market segment.

A surge in energy storage system demand represents a major growth area. New capacity pricing policies in China prompted UBS to raise its ESS demand forecasts for 2026-2035 by 30-53%. The share of energy storage in total lithium demand is projected to jump significantly from 8% in 2020 to 42% by 2035, establishing it as a crucial pillar of lithium consumption.

From a battery technology perspective, Lithium Iron Phosphate (LFP) battery production continues to gain share, dominating global EV battery production by the end of 2025. Plug-in hybrid electric vehicles (PHEVs) are also steadily increasing their market share, providing additional support for lithium demand.

Supply Response: Growth but Insufficient to Meet Demand The supply side is responding, but growth lags behind demand. Primary supply grew approximately 18% in 2025, or nearly 23% including recycling, still below demand growth of 26% (on a lithium carbonate equivalent basis) and 29% (on a total GWh basis). This resulted in a market deficit and continued inventory depletion throughout the year.

Supply will respond to higher prices and market tightness. UBS expects risk-weighted supply to increase by about 20% year-on-year in 2027 and 13% in 2028. While this supply response is accelerating, the market balance is expected to remain tight against the backdrop of strong demand growth.

Recycled supply will gradually increase but remain limited in proportion. Recycled lithium supply is forecast to account for 5.3% of battery demand in 2026, rising to 6.7% by 2030. The growth rate of recycled supply will adjust according to market balance and price changes.

Price Outlook: Significantly Revised Up but Within Historical Range UBS has raised its price forecasts for spodumene and lithium chemicals by up to 74%. For 2026, the spodumene (6% Li2O) price forecast is $3,131 per tonne, a 74% increase from the previous $1,800 per tonne and 73% above market consensus. Forecasts for lithium carbonate and lithium hydroxide are both $26,000 per tonne, up 58% from prior predictions and 50% and 58% above consensus, respectively.

Price forecasts for 2027 indicate continued strength. The spodumene price forecast is $3,469 per tonne, with lithium carbonate and hydroxide both at $28,525 per tonne. These levels represent a significant premium to market consensus, reflecting UBS's more aggressive view on supply-demand tightness.

Medium to long-term price forecasts are relatively moderate. From 2028 to 2030, as the supply response materializes, spodumene prices are expected to gradually decline from $2,750 per tonne to $1,750 per tonne, while lithium carbonate and hydroxide prices are projected to fall from $23,125 per tonne to $20,250 per tonne. The long-term real price (based on 2026) is maintained at $1,200 per tonne for spodumene and $18,000 per tonne for lithium carbonate and hydroxide.

UBS acknowledges the difficulty in selecting appropriate price levels, given that spot prices have historically been over 8 times higher than long-term incentive prices and converter margins have historically provided poor reference points for rational feedstock pricing. Qualitatively, however, the current price forecasts remain within historical ranges. Historically, EV manufacturers have been able to adapt to price increases with limited impact on overall demand. For energy storage systems, material costs are less significant relative to module and battery costs.

Market Balance: Deficits Underpin Prices The market balance indicates a worsening supply deficit. A deficit of approximately 15,000 tonnes emerged in 2025, which is projected to widen to 18,000 tonnes in 2026. This persistent shortfall is expected to support sustained high price levels.

Inventory data corroborates the tight situation. China's lithium carbonate inventories have declined steadily from their 2023 peak, entering a phase of rapid destocking by the end of 2025. Although this paused in December and January, destocking has recently resumed. Lower inventory levels and reduced months of inventory signal supply chain tension. Inventory drawdowns at downstream companies are particularly pronounced, currently running at an annualized rate exceeding 120,000 tonnes. Lithium hydroxide inventories are also declining continuously, with a current annualized destocking rate of about 50,000 tonnes.

The supply-demand gap is expected to partially ease in 2027. As the supply response takes hold, the market is forecast to see a surplus of approximately 61,000 tonnes, alleviating some price pressure. However, the market is projected to return to deficit in 2029 and 2030, with shortfalls of 63,000 tonnes and 87,000 tonnes, respectively.