Why Falling Lithium Prices, Hitting Lowest Level in Five Months, Could Be Good News for the Clean Energy Boom?

Why Falling Lithium Prices, Hitting Lowest Level in Five Months, Could Be Good News for the Clean Energy Boom?

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Heavy industry needs cleaner ways to make the materials the world depends on. Rio Tinto believes biochar can help. The mining giant has signed a five-year offtake agreement with Australian bioenergy company Superchar Limited (SCL) to supply locally made bio pellets for its alumina refineries in Gladstone, Queensland. Deliveries will begin in 2028 after the company completes operational trials and a feasibility study. The deal is another step in Rio Tinto's plan to cut fossil fuel use at one of the most carbon-intensive stages of aluminum production. Instead of replacing coal all at once, the company will slowly increase the amount of bio pellets used in its refinery boilers. This approach lets engineers test how the fuel performs under normal operating conditions. The agreement also reflects a wider trend. Steelmakers, cement producers, and aluminum companies are investing in renewable fuels, hydrogen, electrification, and carbon capture as they work to lower emissions. Why Alumina Refining Matters Aluminum is becoming more important as countries move toward cleaner energy. It is used in electric vehicles, solar panels, wind turbines, battery systems, and power grids because it is lightweight, strong, and easy to recycle. Making aluminum, however, creates significant emissions. The International Aluminium Institute (IAI) estimates that the aluminum value chain produces about 2% of global greenhouse gas emissions. Nearly 90% of those emissions come from alumina refining and aluminum smelting, making them the industry's biggest climate challenge. Refining alumina is especially difficult to clean up. The process needs large amounts of high-temperature steam to turn bauxite into alumina. Most refineries still produce that steam by burning coal or natural gas. Rio Tinto's Climate Action Plan shows that its Gladstone refineries—Yarwun and Queensland Alumina Limited (QAL)—are the company's largest source of process heat emissions. About 75% of emissions come from steam used in digestion. The other 25% results from the high-temperature calcination process. Testing Biochar as a Coal Alternative Rio Tinto is looking for ways to cut emissions without replacing its existing refineries. The company has already tested different blends of coal and bio pellets. During the trials, bio pellets replaced up to 30% of the coal used to produce steam in refinery boilers. The fuel worked without major changes to existing equipment. The new agreement allows Rio Tinto to expand those trials. Engineers will test bio-pellet blends ranging from 5% to 50%. They will measure fuel performance, emissions reductions, operating costs, and long-term supply. The project builds on several other decarbonization efforts in Gladstone. Rio Tinto is also investing in renewable electricity, battery storage, hydrogen research, and energy efficiency across its aluminum business. The Gladstone industrial hub includes the Yarwun refinery, Queensland Alumina Limited—one of the world's largest alumina refineries—and the Boyne aluminium smelter. Together, these operations employ more than 3,000 people. Rio Tinto does not see biochar as a single solution. Instead, it is one of several technologies the company is testing to lower emissions from a sector that has few commercial low-carbon options today. If the trials succeed, they could provide a practical model for alumina refineries around the world that want to reduce coal use without rebuilding their plants. Biochar Is Gaining Ground in Heavy Industry Rio Tinto is not the only company exploring biochar and biomass to cut industrial emissions. Heavy industries need very high temperatures, making it difficult to replace fossil fuels with electricity alone. That is why many companies are testing renewable fuels that can work with existing equipment. The International Energy Agency (IEA) reports that modern bioenergy supplies around 55% of the world's renewable energy. This makes it the largest source of renewable energy today. Bioenergy is key in sectors like steel, cement, chemicals, and refining. In these areas, few low-carbon options are available. The Intergovernmental Panel on Climate Change (IPCC) sees sustainably sourced biomass as a key way to cut industrial emissions. This is true if it comes from well-managed sources and has lower lifecycle emissions than fossil fuels. For Rio Tinto, bio pellets offer another advantage. They can be blended with coal, allowing the company to reduce emissions while continuing to use much of its existing infrastructure. That lowers costs and speeds up deployment compared with building entirely new production systems. Rio Tinto Expands Its Net-Zero Strategy The bio-pellet agreement fits into Rio Tinto's broader climate strategy. The company aims to cut its Scope 1 and 2 emissions by 50% by 2030 from a 2018 baseline and reach net-zero emissions by 2050. To support those goals, Rio Tinto has committed about US$7.5 billion between 2022 and 2030 for decarbonization projects across its global operations. These investments cover: Renewable electricity Battery storage Process heat solutions Hydrogen research ELYSIS technology, which makes aluminum without direct carbon emissions during smelting. The company is also expanding its business in minerals needed for the energy transition, including lithium and copper, while lowering emissions from its own operations. Demand for Low-Carbon Aluminum Is Rising Rio Tinto's investment comes as demand for low-carbon aluminum continues to grow. The International Aluminium Institute (IAI) predicts a nearly 40% rise in global aluminum demand by 2030. This growth will be fueled by electric vehicles, renewable energy, electricity networks, and lightweight construction materials. The IEA also identifies aluminum as one of the most important materials for clean energy technologies. Expanding power grids, solar farms, and wind turbines need a lot of aluminum. This puts pressure on producers to reduce the carbon footprint of each tonne they produce. This creates a new challenge for the industry. Aluminum production must grow to support the energy transition, but it must also produce fewer emissions. A Practical Step Toward Cleaner Refineries Rio Tinto's bio-pellet agreement shows that industrial decarbonization is moving beyond long-term research projects. Instead of waiting for breakthrough technologies, companies are finding practical ways to reduce emissions today. Replacing part of the coal used in refinery boilers with renewable fuels is one example. The agreement will not eliminate emissions on its own. But it could help prove that biochar and bio-based fuels can reduce emissions at large industrial facilities without requiring entirely new plants. Why Falling Lithium Prices, Hitting Lowest Level in Five Months, Could Be Good News for the Clean Energy Boom?

China’s lithium market is sending a mixed signal. Lithium prices have dropped to their lowest level in five months as traders look ahead to a possible oversupply in 2027. Yet, demand from electric vehicles (EVs) and battery storage remains strong.

The market is no longer reacting to today’s conditions. Instead, traders are pricing in what the industry could look like over the next two years.

The shift marks a new phase for the lithium industry. After years of worrying about shortages, investors are asking whether new mines and processing plants will produce more lithium than the market needs. Even so, analysts remain confident that global electrification will continue to support long-term demand.

Lithium Prices Drop as Traders Look Beyond 2026

China’s most-active lithium carbonate futures contract on Guangzhou Futures Exchange fell to 143,999 yuan (US$21,282) per tonne, its lowest level since February. Prices now sit about 31% below their May high level. 

lithium carbonate prices lowest july

The decline does not reflect weaker demand. Instead, traders are focusing on a possible supply surplus in 2027. New lithium projects will add more material to the market over the next two years.

China will also introduce a 2% battery consumption tax in September 2026, then raise it to 4% a year later. Some analysts say the higher tax may slow battery demand over time, although it could encourage buyers to make purchases earlier.

Supply expectations are changing, too. China’s battery giant CATL plans to restart production at its Jianxiawo lithium mine. The restart will add up to 45,000 tonnes of lithium supply during the second half of the year and help narrow the current supply gap.

Despite weaker prices, market fundamentals remain healthy. Lithium inventories continue to fall, while demand from EV makers and energy storage projects stays resilient.

EVs and Battery Storage Keep Demand Strong

While lithium prices have weakened, demand continues to grow.

The International Energy Agency (IEA) reports that global electric car sales topped 21 million vehicles in 2025. EVs accounted for about 25%, or one in four, of all new passenger car sales worldwide. The agency also forecasts continued growth as battery prices decline and more affordable EV models enter the market.

China remains the world’s largest EV market. According to the China Association of Automobile Manufacturers (CAAM), EVs made up 58.5% of all new vehicle sales in June 2026, the highest monthly share on record.

China monthly NEV sales
Source: CnEVPost

First-half EV sales reached 7.45 million vehicles, up 7.3% from a year earlier. EV exports climbed 120% year over year during the same period.

Energy storage has also become a major driver of lithium demand.

As countries add more solar and wind power, they need batteries to store electricity and balance the grid. Reuters reports that lithium demand from energy storage could grow 55% in 2026, following 71% growth in 2025. By 2026, the sector could consume nearly one-third of the world’s lithium, making demand less dependent on EV batteries alone.

These trends explain why many analysts view the recent price decline as a response to future supply, not weaker demand. Even if the market moves into surplus in 2027, global lithium consumption will continue to grow as countries expand clean transport and renewable energy.

More Supply Is Coming Online

More supply is driving the weaker price outlook. The IEA reports that global investment in critical minerals reached a record high in 2024, with lithium remaining one of the fastest-growing sectors. Producers in Australia, Argentina, Chile, China, and Africa are expanding existing mines while bringing new projects online.

Chile, the world’s second-largest lithium producer, is increasing output. Codelco and SQM are expanding operations in the Salar de Atacama, while Argentina continues to attract billions of dollars in new lithium investments.

The country’s two largest producers are planning a major expansion that could increase output from their joint venture by more than 70%. Moreover, as part of a $3 billion upgrade in the Atacama Desert, the Novandino venture said it aims to raise annual lithium production to 470,000 metric tons, up from the 270,000 tons expected in 2026.

Benchmark Mineral Intelligence forecasts that new supply will outpace demand growth in 2027. That imbalance would put additional pressure on lithium prices even as global consumption keeps rising.

Lower Prices Could Speed Up the Energy Transition

Lower lithium prices also create opportunities.

Cheaper lithium reduces battery costs, making electric vehicles and energy storage systems more affordable. According to the IEA, average battery pack prices fell below US$100 per kilowatt-hour (kWh) for the first time in 2024, reaching about US$97/kWh.

According to the benchmark ⁠BloombergNEF (BNEF) Lithium-Ion Battery Price Survey, global average battery pack price dropped to a record low of US$108/kWh in 2025. Lower lithium prices helped drive that milestone.

lithium battery pack prices BNEF

Lower battery costs also support grid-scale energy storage. BloombergNEF forecasts rapid growth in energy storage installations through the end of the decade as countries expand renewable energy and strengthen electricity grids.

Lower lithium prices may reduce miners’ profits, but they also make clean energy technologies more affordable for consumers and businesses.

Miners Face a More Competitive Market

Lithium producers face a tougher business environment. Higher-cost mines may struggle if prices stay low. Several companies have already slowed expansion plans or delayed new projects after lithium prices fell sharply over the past two years.

At the same time, the industry’s largest producers continue investing for long-term growth. They see strong demand from EVs, batteries, and energy storage well beyond 2030.

That shift will reward low-cost producers with high-quality resources while putting greater pressure on higher-cost operations.

A Short-Term Correction, Not a Long-Term Slowdown

The latest price drop reflects changing market expectations, not weaker demand.

Traders are preparing for a larger supply pipeline in 2027. Meanwhile, the long-term drivers of lithium demand remain strong. Governments continue promoting transport electrification. Utilities are building more battery storage. Automakers are launching new electric models every year.

The lithium market has always moved in cycles. Lower prices often encourage more demand while pushing producers to improve efficiency and control costs.

For investors and the broader clean energy industry, today’s price weakness looks less like a warning sign and more like a market adjustment. As supply catches up with demand, lower lithium prices can help accelerate the global shift to electric mobility and renewable energy.

The post Why Falling Lithium Prices, Hitting Lowest Level in Five Months, Could Be Good News for the Clean Energy Boom? appeared first on Carbon Credits.

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