Commodities had a great run in 2021, buoyed by gradual economic recovery from the pandemic and supply-side constraints on a variety of products. Prices for fossil fuels, agricultural products, and industrial metals all rose throughout the year, in several cases more than doubling.
The best performance by a sector overall was in fossil fuels, thanks to OPEC oil production cuts and the fact that energy commodity prices spent much of 2020 wallowing at low levels as global transportation froze up.
Coffee also did very well, driven by shipping constraints, and drought and cold weather in Brazil.
But no commodity came close to lithium, the soft metal that is crucial for batteries. As the market for electric vehicles takes off, global demand for lithium exceeded supply for the first time in 2021, according to S&P Global, and the deficit is projected to widen. As a result, the price of lithium rose by about 437%, according to data from Trading Economics, to nearly $43,000 per ton.
Australia, China, and Chile are the world’s top lithium-producing countries, and S&P projects that global supply in 2022 will be 55% higher than in 2020. But according to the International Energy Agency, lithium demand will need to grow 40-fold by 2040 to meet the demands of an economy that will be more dependent on batteries than it is today, both for EVs and for utility-scale energy storage. That supply can likely be met by existing global reserves, and investors in China and elsewhere are plowing billions into new lithium mines.
The trouble is that lithium production today is extremely water-intensive and often entails the same kind of destructive mining practices that have long been used for coal. And although EV batteries are generally falling in price, lithium could push those prices upward if it stays so expensive. Lower-impact mining methods are emerging, but with prices this high, battery developers will have a greater incentive to pursue technologies that bypass lithium altogether.