Lithium Price Rally Breaks Through Two-Year Resistance as Market Momentum Accelerates

The lithium market is experiencing a significant turnaround after months of weakness. Lithium price benchmarks have surged to their highest valuations since late 2023, driven by a tightening supply landscape and accelerating demand across battery manufacturing. Industry participants are rapidly recalibrating their outlooks as market conditions shift decisively in favor of commodity producers.

Battery-Grade Materials Push Lithium Prices Higher

Battery-grade lithium carbonate and lithium hydroxide assessments have climbed substantially this week, with Fastmarkets’ benchmark quotes for CIF shipments to China, Japan, and South Korea now exceeding US$20,000 per ton. Meanwhile, spodumene—the lithium-bearing mineral extracted by Australian producers—has crossed the US$2,000 threshold for the first time since October 2023, marking a notable technical breakout.

Bell Potter, a prominent commodities broker, this week raised its spodumene price targets to US$1,750 per ton by year-end, representing an 89 percent increase from its previous guidance of US$925. While this upgrade remains conservative relative to more bullish market participants who anticipate peak prices near US$3,250, it reflects a broad consensus shift within the investment community. The recalibration signals that market participants view the current environment as fundamentally different from the oversupply period that plagued 2024 and 2025.

China’s Export Tax Policy Reshapes Lithium Carbonate Demand

Chinese policy changes have emerged as a critical catalyst for the recent lithium price appreciation. Beijing announced modifications to its export incentive structure for battery products, with value-added tax rebates scheduled to decrease from 9 percent to 6 percent beginning in April, before being eliminated entirely from January 1, 2027. Although lithium carbonate itself is not directly subject to these rebates, market participants anticipate that battery manufacturers will accelerate their export timelines to capitalize on existing incentive levels before the deadline. This behavioral response is expected to boost near-term battery production and consequently amplify lithium demand.

The policy announcement triggered immediate trading activity on the Guangzhou Futures Exchange. The most-active lithium carbonate contract hit its daily trading limit during the week, ultimately settling at 156,060 yuan per ton (approximately US$22,300)—its highest close since November 2023 and representing more than 160 percent appreciation from the prior year’s trough. The contract’s sharp movement underscores how responsive market participants have become to policy announcements and supply-demand signals.

Inventory Depletion Heightens Market Sensitivity

Lithium inventories in China have contracted to their weakest levels since mid-2024, creating a structural condition where the market reacts sharply to demand fluctuations. This inventory-constrained environment contrasts sharply with the prior two years, when excess stockpiles suppressed price recovery attempts. Analysts suggest that with buffer stocks now depleted, even modest demand variations can generate outsized price movements, amplifying both upside and downside volatility.

Derivatives Markets Reflect Broadening Lithium Price Interest

The expansion of participation in lithium price derivatives highlights the changing market structure. The Chicago Mercantile Exchange reported that trading volumes in its lithium hydroxide futures reached 8,296 tons during the first full week of 2026, establishing a new all-time record and surpassing the previous peak from early 2025. According to Przemek Koralewski, global head of market development at Fastmarkets, “What traders considered an exceptionally strong monthly volume just one year ago can now be completed within a single week, demonstrating substantially improved market liquidity and accessibility for participants seeking lithium price exposure.”

This surge in derivatives activity indicates that institutional investors, hedge funds, and other financial participants are deploying capital into lithium positions, broadening the investor base beyond traditional commodity traders and physical market participants.

The Path Forward: Sustainability Questions Remain

The lithium market’s recovery gains context when viewed against the preceding downturn. From 2023 through 2025, the sector endured what many analysts characterize as one of the most punishing periods in recent memory. Years of aggressive capacity additions had flooded the market with supply, while electric vehicle demand disappointed relative to bullish pre-pandemic forecasts. This oversupply dynamic forced producers to curtail output, postpone projects, and accept significant price depreciation.

Lithium carbonate in North Asia fell to four-year lows during 2025, reflecting the accumulated pressure from capacity excess. The recovery began accelerating during the latter half of 2025 as producers demonstrated supply discipline and inventories began normalizing. By late December 2025, lithium carbonate prices had already risen approximately 56 percent from their January 2025 troughs—a meaningful but still nascent recovery.

Whether the current lithium price strength will persist hinges on two critical variables: the timing of newly developed mining and refining capacity entering production, and whether actual demand growth in battery manufacturing and electric vehicle adoption matches the market’s current assumptions. If supply capacity comes online rapidly, the pricing support may erode. Conversely, if demand accelerates beyond current expectations while new supply remains constrained, the lithium price environment could sustain or even extend recent gains. Market participants appear optimistic for now, but longer-term sustainability will depend on how these supply and demand dynamics unfold through 2026 and beyond.