Lithium, nickel prices have plummeted: is the ESG bubble bursting?

Lithium and nickel prices continued their plunge as signs of cooling demand continues. Data compiled by Investing shows that the price of lithium carbonate crashed to CNY 174,500 on Thursday, down from the year-to-date high of CNY 365k and last year’s high of 600k. Similarly, nickel price has dropped from last December’s high of 31k to 18.45k. 

Demand and supply dynamics

Lithium and nickel are two of the most important commodities as countries focus on climate change. The two are an essential part of the clean energy transition since they are widely used to manufacture batteries.

These metals surged during the pandemic as demand rose and the shift to ESG investing continued. Recently, however, their performance has deteriorated as investors focus on the ongoing demand and supply dynamics.

There are signs that the demand side is deteriorating since the market is now saturated with the metals. Countries like Indonesia, Zimbabwe, Chile, and Australia have boosted their production to meet the rising demand.

The United States is also expected to become a big player in the lithium industry as it recently made a big find in Nevada. Lithium Americas, the company that made the find, expects to start mining in 2026.

Nickel and lithium prices have also plunged because of China’s market share in the industry. The country has invested in most lithium and nickel mines internationally. As a result, there are concerns that the country will do with them as it did with steel. 

The demand side is also not doing well as the EV industry sees a major slowdown. Tesla reported weak earnings on Wednesday after it spent months slashing prices. Ford is also reducing production of its Lightning product. Other EV companies like Xpeng, Nio, and Li Auto have warned about slow growth.

Watch here: https://www.youtube.com/embed/cZlsZwcIgpc?feature=oembed

Is the ESG bubble popping?

The performance of lithium and nickel prices is a sign that the E part of ESG is not doing well. For example, in a speech in September, Prime Minister Rishi Sunak warned that the UK would not achieve its net-zero plans as scheduled. As a result, he extended the Internal Combustion Engine (ICE) ban to 2035.

Meanwhile, companies like Shell and BP, which have invested heavily in renewable energy projects, have scaled back their green ambitions after years of underperformance. 

Most importantly, shares of companies in the wind, hydrogen, and solar industries have all plummeted. Sunrun stock has fallen by almost 90% from its highest point in 2020. Plug Power has crashed by 90% from its pandemic highs. Other companies like ChargePoint, Enphase Energy, and First Solar have also crashed.

CHPT vs RUN vs ENPH vs PLUG chart

This is a sign that investors no longer believe that returns in these industries are justified especially in the ongoing high interest rates environment. Rates have surged to 5.50%, the highest point in more than 2002. 

Another sign that the ESG bubble is bursting is that many ESG funds have seen billions in outflows in the past few months.

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