On Oct 12, SMM quoted spot battery-grade lithium carbonate at 111,500-119,300 yuan/mt, with an average price of 115,400 yuan/mt, a sharp drop of 6,950 yuan/mt from the previous working day, or about 5.7%, marking a heavy single-day slump. The most-traded lithium carbonate futures contract 2701 opened lower and moved lower, hitting an intraday low of 105,320 yuan/mt, with the largest intraday decline once approaching 11%. Open interest stood at 440,000 lots, up by about 17,000 lots, showing a pattern of falling prices on rising volume and open interest.
1. Market news: Demand expectations and mid-term supply expectations both took a hit
1. The EU plans to adopt safeguard measures to cut annual imports of Chinese hybrid vehicles by about half from an estimated 800,000 units in 2026. The first-year cap would be about 350,000 units, rising 6% each year from the second year, with the measures lasting four years. Additional tariffs may be imposed on volumes exceeding the quota. If approved, the measures would take effect as early as Dec 1, 2026. The restricted models are mainly LFP hybrids, and the news directly dented market confidence in the sustainability of LFP demand.
2. In September, domestic retail sales of passenger NEVs reached 1.084 million units, down 16.7% YoY and up 7.8% MoM. From January to September, retail sales of passenger NEVs totaled 7.758 million units, down 12.8% YoY.
3. Expectations of mid-term supply recovery are building. Expectations of production resumptions at overseas mines and the release of new capacity remain in place. Lithium Africa recently announced it is advancing the Springbok lithium project in South Africa, with first production of spodumene concentrates planned for H2 2027. Jiangxi Special Electric Motor announced on Oct 11 that it had received a review opinion from the National Mine Safety Administration, agreeing in principle to approve the safety facility design for its Xikeng lithium mine with a mining capacity of 3 million mt/year. The mine has a theoretical LCE capacity of about 20,000 mt/year. Meanwhile, the Yichun Municipal Ecology and Environment Bureau again issued a public notice on Oct 8 regarding the proposed acceptance of the environmental assessment for the Jianxiawo lithium mine.
2. Supply-demand fundamentals: Limited near-term supply growth; steady production schedules during peak demand season
On the supply side, according to SMM data, lithium carbonate production last week was 25,418 mt, down 523 mt WoW, with production from spodumene-based lithium extraction, salt lake lithium extraction, and recycling-based lithium extraction all declining to varying degrees. October production schedules, including lithium extraction from slag, are expected to be 118,000 mt, with limited growth.
On the demand side, production schedules during the peak season remain steady. In October, SMM total battery cell production schedules are about 320 GWh, up about 6% MoM. LFP cathode material production schedules are about 500,000 mt, up about 4% MoM. Ternary cathode material production schedules are about 84,000 mt, up about 3% MoM. Demand data itself is not weak, and the supply-demand pattern remains tight. However, the current demand peak season has been fully priced in by the market, and the pricing focus of futures has shifted to supply and demand expectations for next year.
Inventory: destocking continued. As of October 8, SMM total inventory stood at 139,517 mt, down 9,260 mt from before the holiday. The destocking was mainly driven by cathode plant absorption (down 8,347 mt MoM), with the trade segment also destocking (down 1,445 mt), while upstream inventory edged up 201 mt. The absolute inventory level continued to converge toward the low end, providing some support to spot prices.
III. Market Outlook
Today's increase in open interest alongside price declines indicates that bears are actively entering the market, and consensus on the downside direction is strengthening. After lithium carbonate prices broke below the 110,000 yuan level, the bearish technical pattern has been established. In the short term, lithium carbonate prices are likely to remain in the doldrums, with the 100,000 yuan/mt round-number level becoming the next important period to watch. Looking ahead, several key variables:
1. Whether cost support near 100,000 yuan/mt and salt plants' willingness to hold prices firm can form effective resistance.
2. The realization of downstream production schedules in October and November and the sustainability of post-holiday restocking. LFP orders are currently the most important bullish logic.
3. After the seasonal slowdown in Australian ore shipments and arrivals in October, whether port and trade inventories can continue to destock.
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