* Lithium prices decline in 2018: tmsnrt.rs/2N3g6cF
* Lithium demand growth: tmsnrt.rs/2NEVCqZ
* Electric vehicles: Sales forecast tmsnrt.rs/2PuORFo
By Zandi Shabalala
LONDON, Sept 17 (Reuters) - An oversupply of lithium this year has nearly halved prices this year in China, halting an unprecedented run for the key component for batteries used in electric vehicles.
But analysts say solid long-term demand should shore up the market after a slight surplus in demand this year.
A boom in electric vehicles has boosted prices for components of lithium-ion batteries including lithium and cobalt, as consumers such as car companies to scramble to secure supplies.
But lithium prices have come under pressure in 2018 because miners have ramped up production, consumers destocked supplies and asubsidies in China's new energy vehicles (NEV's) market have been pulled back.
Prices in China, the world's biggest consumer of lithium, plunged to $13,000 per tonne in August from a peak of $24,750 in March, according to prices tracked monthly by Benchmark Mineral Intelligence (BMI).
"There is certainly no shortage of potential supply and there are already a huge number of projects out there," said Alex Laugharne, principal consultant at CRU.
Although demand is will not falter, analysts say, prices for lithium carbonate in China, the type used in batteries, will remain under pressure this year due to oversupply.
Analysts at CRU expect the lithium market to be in surplus by 22,000 tonnes in 2018, with demand expected to reach 277,000 tonnes.
This chimes with an outlook by Wood Mackenzie which sees lithium prices continuing a downward trend due to a "surplus through the short to medium term".
Meanwhile, a tightening in credit forced lithium market players in China to destock as they tried to secure cash, further flooding the market with the chemical, analysts said.
At the same time, China removed many of the subsidies for some NEVs as part of efforts to push automakers to focus more on technological improvements instead of relying on fiscal policy.
These changes in subsidies caused consumers to hold back on purchases in the first half of the year as they adjusted purchasing strategies and waited for prices to fall further, causing a slow down in activity, BMI analyst Andrew Miller said.
In the second quarter of 2018, China produced 265,000 units of NEVs, up from 148,000 units in the first quarter but down from 370,000 units produced in the fourth quarter of 2017, according to industry ministry data.
Although the second quarter figures mean output is up 94 percent in the first half of this year compared to last year, analysts say this was a slower-than-expected pace.
Shares in lithium producers such as Albemarle and SQM,, and Japan's Jiangxi Ganfeng Lithium have suffered under pressure from commodity prices.
In addition to a stronger dollar, which has made dollar-denominated commodities more expensive and lower prices, and a weaker Chinese yuan, lithium miners mostly based in Chile are facing a potential delay in water licences.
Shares in Albemarle and SQM, which together churn out 37 percent of the world's lithium, are down 25 percent and 20 percent so far this year.
But lithium demand should continue to rise along with a wider adoption of electric vehicles, supported by many cities in the world that are banning or punishing petrol or gasoline-engine cars to reduce carbon emissions.
"The demand for lithium isn't really in question, it's just a matter of when that demand really kicks in," BMI's Miller said. "You just have to look at the number of battery factories that are being built around lithium-ion technology."
He said price reaction to the slight oversupply in the lithium market this year was overdone and says the long-term prospects for the industry remain intact.
Reporting by Zandi Shabalala; editing by David Evans