Key Points
- A boom in battery storage is driving a recovery in the lithium market.
- Demand from power grids and AI data centers has surpassed expectations. Lithium prices have soared 130% since their low in June 2025.
- Some analysts are now forecasting a lithium deficit in 2026 after years of surplus.
- The energy storage sector is expected to account for 31% of all lithium demand in 2026.
The lithium market, which has struggled with a massive oversupply for the past few years, may be on the verge of a major turnaround. A boom in battery storage, driven by the needs of power grids and AI data centers, is creating a surge in demand that could finally absorb excess supply and push prices higher in 2026.
The lithium industry has been volatile in recent years. A boom in electric vehicle sales sent prices soaring in 2022, spurring a surge in new supply. But demand couldn’t keep up, and prices crashed.
Now, a new source of demand is emerging. China’s recent power sector reforms have made it much more profitable to build large-scale battery storage systems, and these systems require significant lithium.
The global AI race is also playing a major role. New data centers require significant power, and battery storage is essential to keep them running. This new demand from the energy storage sector exceeded expectations in the second half of 2025 and is expected to grow by another 55% in 2026.
This has led to a dramatic recovery in lithium prices. After hitting a low in June, prices on the Guangzhou Futures Exchange have soared by 130%. While some analysts still expect a small surplus in 2026, others, such as Morgan Stanley, now forecast a deficit. This has led to a wide range of price predictions for the coming year, from $11,432 per ton to $28,580.
There are still some risks. A faster-than-expected switch to sodium-ion batteries, which don’t use lithium, could hurt demand. Slowing EV sales, especially in China, could also pose a problem. But for now, the battery storage boom is giving the lithium industry a much-needed jolt of optimism.
