What Has Contributed To The Unexpected Rally Of Lithium Carbonate Price After Persistent Downturn?
On October 12, SMM's battery-grade lithium carbonate index was 170,544 yuan/mt, up 9 yuan/mt from the previous working day. The average price for battery-grade lithium carbonate was 169,500 yuan/mt, with a range of 161,000-178,000 yuan/mt, up 500 yuan/mt from the previous working day. The average price for industrial-grade lithium carbonate was 157,000 yuan/mt, with a range of 152,000-162,000 yuan/mt, up 100 yuan/mt from the previous working day. From the perspective of market trends, there has been little change in the fundamental market conditions of the spot market. Lithium salt prices have already reached a low level, breaking the breakeven point for most smelters, resulting in many upstream producers reducing or halting production. In addition, most manufacturers have strengthened their pricing mentality, and the downside risk has bottomed out. Some lithium salt companies have stopped their zero-order external sales and are only fulfilling long-term orders from inventory, leading to a continuous decline in the overall inventory level of the industry and a slight easing of the market supply-demand pattern. Furthermore, some traders who obtained low-priced supply sources from a certain salt lake large factory in the early period have increased their prices for sale, which has also promoted a change in market sentiment from downward to upward.
Lithium carbonate price trend
According to SMM, at the end of April, a large salt lake-based lithium carbonate enterprise caused a shortage of low-priced supply in the market. Coupled with expectations for a rebound in demand in the future, the price of lithium carbonate stopped falling and rebounded until reaching a high point. However, since mid-June, with the end of downstream seasonal stockpiling, inventory levels at various links in the industry chain rebounded significantly, leading to a rapid decline in demand for lithium salts and driving the price of lithium carbonate back from its peak. Against the background of a significant slowdown in the growth rate of the new energy vehicle market and the fact that the incremental demand for the energy storage market was not as expected, the seasonal rebound in demand for lithium carbonate in the lithium battery industry chain in August and September did not materialize, putting further pressure on the price trend of lithium salts. However, after several days of consolidation in early October following the National Day holiday, the price of lithium carbonate rebounded. On October 12, SMM's average price for battery-grade lithium carbonate was169,500 yuan/mt, up 500 yuan/mt from the previous trading day. This was the first rebound since battery-grade lithium carbonate fell from its high point of 307,500 yuan/mt on July 11. What will happen to the price of lithium carbonate in the future? Can this rebound continue? How strong will the rebound be?
Supply-side still faces expectations of reduction, but imports in the future may serve as effective supplement
In September, the production of lithium carbonate in China was 41,724 mt, a decrease of 7% MoM but an increase of 27% YoY. In terms of lithium extraction from spodumene, although there were new projects ramping up and production switching, many enterprises reduced or halted production due to outsourcing and raw material issues, resulting in a decrease in spodumene-based lithium carbonate production. As for lithium extraction from lepidolite, a reduction in externally sourced ore combined with plant maintenance led to a continued decrease in lepidolite-based lithium carbonate production. In terms of lithium extraction from salt lakes, seasonal factors resulted in an overall decrease in production. In terms of recycling, high costs and losses, coupled with a decrease in battery scrap, led to a reduction in recycled lithium carbonate production. It is expected that in October, although there will be ongoing production ramp-ups from switching projects, the declining lithium salt prices will cause continued losses for smelters who rely on external raw materials, forcing them to reduce or halt production. Additionally, a leading enterprise is expected to undergo maintenance, further contributing to a decrease in production. The production in October is projected to be 38,613 mt, a decrease of 7% MoM but an increase of 13% YoY.
The production situation of some lithium salt enterprises:
[Company A]: 4,000 mt in September, down 53% MoM in October.
[Company B]: 1,380 mt in September, down 52% MoM in October.
[Company C]: 1,920 mt in September, up 25% MoM in October.
In terms of imports and exports, according to SMM, the amount of lithium carbonate exported from Chile to China in September decreased MoM, but this was due to seasonal factors affecting port arrivals and there is still a significant inventory at ports. Therefore, it will not affect the overall supply of lithium carbonate in October. Overseas shipments of lithium salt in the fourth quarter are still expected to be optimistic, and will provide effective supplementation to the supply of lithium carbonate in China.
There is no significant improvement in demand, and downstream production has witnessed varying degrees of decline
In September, domestic demand for lithium carbonate was 56,313 mt, down 2% MoM but up 6% YoY. The main reason was the slight increase in digital demand, but the weak demand from both the EV and energy storage sectors resulted in no improvement in overall terminal demand. This has had a knock-on effect on the demand for ternary cathode and LFP cathode materials, and the industry as a whole is mainly focused on destocking, resulting in weak actual purchasing demand for lithium carbonate. In October, overall demand is expected to further decline, with a significant phenomenon of lower-than-expected demand. It is estimated that demand in October will be 53,052 mt, down 6% MoM.
The production situation of some battery cell enterprises：
[Company A]: 35.9Gwh in September, down 3% MoM in October.
[Company B]: 13Gwh in September, down 8% MoM in October.
[Company C]: 5Gwh in September, down 8% MoM in October.
The production situation of some LFP enterprises:
[Company A]: 31,000 mt in September, down 3% MoM in October.
[Company B]: 16,000 mt in September, down 13% MoM in October.
[Company C]: 12,500 mt in September, flat MoM in October.
The production situation of some ternary lithium battery enterprises:
[Company A]: 8,220 mt in September, down 6% MoM in October.
[Company B]: 6,800 mt in September, down 22% MoM in October.
[Company C]: 5,700 mt in September, down 9% MoM in October.
The quarterly pricing of ore has been preliminarily determined, and the profitability of lithium salt manufacturers has improved
From a cost perspective, it is difficult for the downward trend of lithium salt prices to reach the cost line of companies who have their own lithium ore resources in the short term. The high marginal cost support still comes from enterprises who source spodumene and lepidolite externally.
From the perspective of spodumene, starting from the first quarter of 2023, the price of lithium carbonate plummeted rapidly, but the cost of external purchasing of lithium spodumene remained high, resulting in a sharp narrowing of the profit margin for lithium salt factories and even negative profits since the end of the first quarter. At the end of April, the price of lithium carbonate rebounded, but the pricing of lithium spodumene concentrate is linked to monthly or quarterly prices of lithium salt or lithium ore, thus the decline in the price of lithium spodumene was relatively slow. Therefore, although lithium salt factories had certain profit margins, they were extremely limited. After that, as the price of lithium carbonate continued to decline, spodumene-based smelting enterprises continued to experience losses. Until reaching loss of 76,766 yuan/mt on September 22, spodumene-based smelting enterprises could no longer bear the staggering losses and production cuts became frequent. Since October, the fourth-quarter ore prices have been preliminarily determined for some lithium salt enterprises, and the marginal costs have significantly decreased. In addition, after experiencing the cost-price inversion in the early stage, the sentiment of raising prices gradually increased, and losses began to shrink. The price of lithium carbonate exhibits cyclical fluctuations.
From the perspective of lepidolite, from the end of 2022 to mid-September 2023, daily-linked lithium carbonate production remained profitable, reflecting a strong correlation between the price of lithium lepidolite and the price of lithium carbonate. However, starting from the end of September 2023, enterprises who sourced lepidolite externally faced losses, forcing them to reduce or halt production. After losses reached certain point, the price of lithium carbonate rebounded from low. Through cost-profit analysis of enterprises that purchase lepidolite externally, SMM found that this situation is very similar to the end of April when such smelters reached a break-even point. The price of lithium carbonate also exhibited cyclical fluctuations accordingly.
With weak supply and demand, how will prices perform in the future?
Although the production of lithium carbonate decreased in October, increased imports have led to sufficient supply in the market. Demand continues to decrease. We estimate shortfall of 789 mt of lithium carbonate. After the National Day holiday, many lithium salt factories started to raise prices and limit sales, which has created stronger market sentiment and helped stabilize short-term lithium carbonate prices. However, downstream long-term contracts have mostly met their own demand, and the proportion of customer-supplied materials in the battery and automotive sectors is increasing. Under the circumstances of continuous demand decline, there is limited spot purchasing in the intermediate links. It is expected that the short-term deadlock between upstream and downstream players will continue. While lithium salt factories may have strong willingness to raise prices after reaching their cost lines, and speculative activities by traders are frequent, the pressure on the demand side is evident. Therefore, the short-term price of lithium carbonate may fluctuate, and a further rebound is not ruled out.
