Lithium, often called “white gold” and a key ingredient in batteries, is a metal so light it floats on water, yet its price has fallen sharply in the past year.

Driven by a combination of falling global electric vehicle sales and a global oversupply of lithium ore, the cost of the main lithium compound has fallen by more than three-quarters since June 2023.

The decline has hit Australia particularly hard because it is the world’s largest producer of lithium ore, accounting for 52% of global output last year.

Australia has the second largest deposits of this mineral after Chile, with the vast majority located in Western Australia and a smaller portion in the Northern Territory.

The plummeting lithium price has led to the mine closing. Adelaide-based Core Lithium announced in January that it was suspending production at its Finniss mine near Darwin due to “poor market conditions,” resulting in the loss of 150 jobs.

Then in August, US company Albemarle said it would reduce production at its Kemerton lithium processing plant, about 170 km (100 miles) south of Perth. This is expected to lead to more than 300 job losses.

Arcadium Lithium followed suit this month, announcing it would close its Mt Cattlin mine in Western Australia, blaming low prices. The company’s shares are listed in both the US and Australia.

But while some producers are suspending production, others are increasing output, confident that global lithium demand – and therefore prices – will return to normal.

Pilbara Minerals is one such company. The Perth-based miner aims to increase lithium ore production by an additional 50% over the next year.

“What we’ve learned historically from lithium prices is that they can change, and they can change quickly,” Chief Executive Dale Henderson recently told ABC News. “That doesn’t scare us because we know the long-term outlook is fantastic.”

That confidence is shared by Kingsley Jones, founder and chief investment officer of Canberra-based investment firm Jevons Global, which tracks the mining and metals sectors. “Lithium remains very strategic for the energy transition,” he tells the BBC.

“Electricity batteries are a big growth area,” he adds, pointing to the growing demand for batteries to store energy generated by solar and wind power.

Some analysts, however, warn that oversupply will keep market pressure at least until 2028.

Another company moving forward with increased lithium ore production in Australia is Perth-based Liontown Resources. In July, it began production at its Kathleen Valley mine, located 420 miles (680 km) northeast of the Western Australian capital.

The facility obtains 60% of its energy from its own solar panel farm.

Australia’s Minister for Climate Change and Energy, Chris Bowen, praised the resort’s eco-friendly approach. His government has invested A$230m ($156m; £118m) in the facility.

This move towards renewable energy is also good news financially for Australian manufacturers as it reduces their reliance on expensive diesel fuel, which is currently the main fuel they use to generate electricity.

Mining lithium ore in the country requires three times more energy than in other major producing countries such as Chile or Argentina, says Prof Rick Valenta, director of the Sustainable Minerals Institute at the University of Queensland.

Mining in Australia requires extra energy because the lithium ore, also known as spodumene, must be mined and removed from solid rock. In Chile and Argentina, the ore is extracted by evaporating it from brine collected from beneath the countries’ vast salt flats.

“Because Australia has hard rock mining operations, they use more energy and produce more emissions than brine mining operations,” adds Prof Valenta.

The form of lithium that Australia exports – almost all of which goes to China – is partially processed ore called spodumene concentrate.

Prices for this have mirrored the sharp decline in refined lithium prices. One report this month said spodumene prices hit their lowest level since August 2021.

Chinese companies process spodumene into solid lithium and two lithium compounds used in batteries – lithium hydroxide and lithium carbonate.

This is where the real money can be made, with a tonne of lithium carbonate currently costing around 72,500 yuan ($10,280; £7,720), while the same weight of spodumene concentrate costs just $747 (£630).

Given this price difference, Australian mining companies have, unsurprisingly, begun building their own lithium refineries rather than exporting almost all of their spodumene as they do now. In 2022–2023 98% was exported as spodumene concentrate.

The first refined lithium to be commercially produced in Australia came in 2022, when Perth-based IGO announced it was producing battery-grade lithium hydroxide at its Kwinana refinery in Western Australia. It co-owns the plant with Chinese company Tianqi Lithium.

Meanwhile, another Australian miner, Covalent Lithium, is building its own lithium refinery, also in Western Australia. And Albemarle has its own refinery, although it is currently reducing its production.

Some commentators have welcomed the expansion of lithium refining in Australia, saying it will help reduce China’s dominance of the global lithium market. China currently accounts for 60% of all lithium refining.

However, Kingsley Jones says Australia needs to be more open to take over Chinese investment in lithium sector. He points out that the Australian government, in his opinion, “has adopted a strategy, which we consider unwise, of favouring investment from countries other than China” in the lithium sector in recent years.

This comes as relations between the two countries have cooled since 2020. Last year, Canberra even blocked the sale of an Australian lithium mine to a Chinese company.

The government said at the time that it was simply following the recommendations of the National Foreign Investment Review Board.

Mr. Jones adds: “It’s a perfect example of how to shoot yourself in the foot as a manufacturer. You tell your biggest buyer to go away. So he goes away.”

The Australian Department of Industry, Science and Resources did not respond to a request for comment.

As Australia strives to become more of a lithium refiner, government scientists continue to explore ways to do it in a more environmentally friendly way, a code that, if cracked, could make the country one of the greenest producers of the metal. Currently, the process releases a lot of toxic chlorine gas.

“There is only one industrial method, but it has several drawbacks,” says Dongmei Liu, a scientist working at the Australian science agency CSIRO.

“The process is very expensive and inefficient. Most importantly, it also produces chlorine gas. It has serious environmental problems.”

Instead, she and her team are working on a new process called “shock quenching.” It involves extremely cooling lithium vapor, and Dr. Lui says it “avoids the emission of chlorine gas.”

Australia hopes to make its minerals industry less polluting, but also wants to increase recycling.

Lithium Australia is a publicly listed company that sorts and processes used batteries to extract lithium and other reusable metals.

“Global commodity prices are putting economic pressure on lithium, so creating a circular battery industry will benefit Australia by giving us the sovereign ability to produce and recycle our own batteries,” says Simon Linge, CEO of Lithium Australia.

“If Australia is to create a battery industry, we must first ensure that no used lithium batteries end up in landfill or are exported to another country for recycling.”