Lithium prices are spiraling down toward the lowest level in two years on concerns over the strength of Chinese demand for the material, a key ingredient in electric vehicle batteries.

Prices of lithium carbonate in China fell to 166,500 yuan ($22,814) a ton last Wednesday, ahead of the Golden Week holidays, a loss of almost half from the recent peak in early June. The decline has been precipitous. Less than a year ago, the metal reached a record of 598,000 yuan a ton.

The slump has hammered lithium producers too, with the Sprott Lithium Miners ETF tumbling to the weakest since its inception in February, and Global X Lithium & Battery Tech ETF plunging to the lowest since 2020.

Demand for lithium typically picks up in the fourth quarter in China - the world’s largest EV market - because of strong battery cell production and installation, and manufacturers usually replenish their feedstock ahead of that.

But this year, that hasn’t happened. Sizable restocking has yet to materialize, said Susan Zou, an analyst with researcher Rystad Energy. Battery makers still have plenty of inventory to draw down, she said.

While the drop in prices may curb supply, especially from lepidolite mines in China, the pace of the decline in demand means they could go lower, said Wanyi Shao, an analyst at Guotai Junan Futures Co. “Car and battery manufacturers have been cautious when it comes to restocking” because consumer demand is weaker than expected, she said.

Read more: China’s Wild World of Lithium Takes Off in Race for Key Minerals

In China, carmakers are struggling to defend their market share amid economic uncertainty. EV sales growth in the Asian nation slowed to 37% in the second quarter from a year earlier, versus a global average of 50%, according to consultancy Counterpoint Research.

Goldman Sachs Group Inc. analysts including Aditi Rai see lithium carbonate prices falling further over the next 12 months. “For the rest of the year, the fundamental focus appears to be on a seasonal uptick in Chinese EV sales, and we think any disappointment relative to historical norms could put accelerated downward pressure on prices,” they wrote in a note dated Sept. 21.

Still, the current pullback provides a good buying opportunity for lithium stocks as demand growth over the next decade should support long-term prices, according to Wilsons Advisory. BloombergNEF expects global demand for lithium to grow nearly five times by the end of the decade.

--With assistance from Georgina McKay.