Veterans of the lithium market are acutely aware of the sector's brutal cyclicality—it is an "immature" commodity where demand often grows at double-digit rates, yet prices remain wildly volatile. However, Deutsche Bank posits that while history often rhymes, the melody this time may indeed have changed.
According to analysis, on January 14, Deutsche Bank's team led by Corinne Blanchard stated in a recent report that lithium likely hit a cyclical bottom in the summer of 2025 (around August). Since then, lithium spot prices have climbed approximately 160% from their lows, while futures have surged a staggering 180%. Unlike previous bull runs driven by government subsidies for electric vehicle (EV) frenzy or supply chain shocks, the foundation of this current bull market is more robust: it is built upon a market that has grown 11 times larger and is now mature, propelled by the "inelastic demand" for Battery Energy Storage Systems (BESS) from AI and data centers.
For investors, this implies that the old "basket" of speculative strategies may no longer be effective. The market is returning to fundamentals; the proliferation of financial instruments, such as futures, enhances transparency, while the reactivation of idled capacity will curb runaway price increases. This represents a shift from "irrational exuberance" towards "rational growth."
Looking back: The cycle of boom and bust Over the past 15 years, the lithium market has experienced 5 "boom" periods and 4 "bust" periods (defined as peak-to-trough changes exceeding 20%).
The average cycle: Boom periods lasted an average of 13 months, while bust periods averaged 18 months.
The great bust (2021-2022): Lasted approximately 25 months.
The most recent bottom: August 2025.
Historical price volatility often stemmed from the market's small size and severe supply-demand mismatches. For instance, the 2016-2017 boom was built on prematurely optimistic expectations for Energy Storage Systems (ESS); whereas the "irrational exuberance" of 2020-2022 drove spot prices to a peak of around $82/kg, only to be followed by a crash of "excessive rationalization" in 2023-2025, with prices plummeting nearly 90% to a low of $8/kg.
Deutsche Bank specifically mentioned the "dead cat bounce" in the summer of 2023, when prices, driven by sentiment, briefly recovered to $69/kg before resuming their decline in July.
Drivers: Dornbusch overshooting and policy whiplash Why does the lithium price always experience such dramatic swings? The report highlights three key factors:
Dornbusch overshooting mechanism: Similar to foreign exchange markets, lithium prices tend to "overshoot" in response to shocks. Spot prices react swiftly, while corporate pricing lags, and new supply responds extremely slowly to price signals, amplifying supply and demand shocks.
Market size effect: Although the market has grown substantially now, in the past, it was extremely small. Minor changes in the supply-demand balance could trigger massive price fluctuations.
Dynamic policy impact: From government support on the supply side (like China's anti-involution policies) to EV subsidies on the demand side, policies often added fuel to the fire during market overheating and exacerbated overcapacity during downturns.
Why this time is different: The new narrative of AI and energy storage Investors are accustomed to caution regarding commodity cycles, but Deutsche Bank believes this cycle is fundamentally different, primarily evident in the following aspects:
Market maturity and scale: Estimated supply in 2025 is approximately 11 times the size of the market in 2015. Furthermore, the introduction of financial instruments like GFEX futures provides the market with more tools for risk exposure management, reducing speculation reliant solely on stock exposure and helping form more rational valuations during the bull market.
China's role and discipline: China's share of global production has risen to 15-20%. More importantly, recent "anti-involution" policies appear to be curbing the entry of speculative or irrational supply into the market, which provides support for prices.
Shift in demand driver—from EVs to BESS: This is the most critical difference. Past booms were partly driven by government-subsidized electric vehicle mandates, whereas the current uptick is primarily driven by pure fundamental demand for Battery Energy Storage Systems (BESS).
The AI and data center theme: Surging demand from the AI and data center industries for stable power sources (renewable energy + BESS) has become a key catalyst for BESS adoption.
Policy agnosticism: This demand is endogenous and organic, not reliant on government subsidies like past EV demand, making it more resilient.
The buffering effect of idled capacity: Currently, capacity under maintenance (excluding CATL) is approximately 115,000 tonnes. The reactivation of this capacity may cause short-term intraday volatility, but it also acts as a "circuit breaker," preventing prices from soaring uncontrollably as in the past, thereby avoiding subsequent devastating crashes.
The return of valuation logic As market sentiment shifts, investors are beginning to move from "theme investing" back to "fundamental investing." Data indicates that the lithium industry's valuation multiples (EV/EBITDA) typically peak *before* spot prices rise, and actually decline when spot prices are at their highest. This is due to the cyclical nature of commodities and the lag in analysts' earnings forecast adjustments. Currently, the market is refocusing on specific valuations and cash flows, rather than just broad thematic investments based on policy expectations. This shift towards value-driven investment further confirms that the current cycle is built on a more rational foundation.
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