Energy Storage Boom Strengthens Demand Outlook for Beaten-Down Lithium

Summary

• Energy storage could be game changer for lithium – analyst says
• Demand bolstered by China power sector reforms, data centre boom

BEIJING/SINGAPORE, Jan 5 (Reuters) – A boom in battery storage has bolstered the demand outlook for lithium in 2026, driving hopes for an accelerated turnaround for an industry struggling with oversupply.

The lithium market has been grappling with a supply glut since the second half of 2022, with demand failing to keep pace with surging supply fuelled by a furious price surge that

But China’s power sector reforms helped to fuel stronger than expected demand for lithium used in batteries for power system storage in the second half of 2025, supporting a cautiously optimistic view of prospects for the new year.

The data centre building boom in China and globally has also driven growing power storage demand for lithium, said Jinyi Su, a Wuxi-based analyst at consultancy Fubao, adding that rapid growth in lithium demand from energy storage in the second half of 2025 has surpassed expectations.

“Looking ahead, energy storage is likely to become a game changer for lithium, improving its fundamentals, but too high a price could undermine the economics of energy storage, keeping a lid on prices,” Su said.

Battery storage systems have emerged as China’s most lucrative clean-tech export, with nearly $66 billion in sales for the first 10 months of 2025, followed by around $54 billion in EV exports.

Morgan Stanley forecasts a deficit of 80,000 metric tons of lithium carbonate equivalent (LCE) in 2026, while UBS estimated a deficit of 22,000 tons, compared with an expected surplus of 61,000 tons in 2025. Three other Chinese analysts said they expect a narrower lithium market surplus this year.

Global lithium demand will grow by 17% to 30% in 2026 while supply is expected to rise by 19% to 34%, according to a range of forecasts by four analysts, who declined to be identified as they are not authorised to speak to media.

Analysts forecast a price range of 80,000-200,000 yuan ($11,432-$28,580) per ton in 2026, versus 58,400-134,500 yuan in 2025.

TURNING POINT?

Lithium prices continued falling in the first half of 2025, hitting a low for 2025 of 58,400 yuan on June 23, squeezing margins and share prices for miners globally and forcing some to curb output.

But Beijing’s July pledge to crack down on overcapacity across several sectors including lithium and the August production halt at Chinese battery giant CATL’s Jianxiawo mine, accounting for around 3% of global supply, sparked a global price surge.

Lithium carbonate prices on the Guangzhou Futures Exchange soared by 130% from this year’s low to their highest since November 2023 at 134,500 yuan per ton on December 29. Spot prices assessed by information provider Fastmarkets surged by 108% over the same period.

Lithium demand for energy storage is expected to grow by 55% in 2026, following a jump of 71% in 2025, according to a Reuters calculation based on UBS data.

Broker Guotai Junan projected lithium carbonate equivalent demand from energy storage will account for 31% of overall consumption in 2026, up from 23% in 2025, eating into market share dominated by electric vehicle batteries.

But a potentially quicker-than-expected migration to sodium-ion battery technology for storage systems as well as slowing EV sales could reduce demand, while supply growth will limit the price upside, said analysts.

In December, the head of China’s passenger car association warned of a  in first quarter lithium battery demand, partly from an expected drop in EV sales as tax incentives are phased out.