[SMM Analysis] Does the Significant Price Increase Signal Reversal in the Lithium Hydroxide Market?

On November 19, the SMM lithium hydroxide index price was 68,010 yuan/mt, up 570 yuan/mt from the previous day. The average price of battery-grade lithium hydroxide coarse particles was 67,650 yuan/mt, up 400 yuan/mt from the previous day. The average price of battery-grade lithium hydroxide micropowder was 73,260 yuan/mt, up 350 yuan/mt from the previous day. The average price of industrial-grade lithium hydroxide was 60,070 yuan/mt, up 500 yuan/mt from the previous day.

Why did lithium hydroxide prices rise so significantly? The analysis points to three main reasons:

First, lithium hydroxide prices had previously reached low levels, and major producers were reluctant to sell. In a surplus supply situation, lithium hydroxide market prices had been declining since mid-May, hitting cost floors. Major producers showed weak willingness to sell at current prices and had unprecedented sentiment to stand firm on quotes. Additionally, since the beginning of this year, the CR5 share of lithium hydroxide production has remained at 70% or above, indicating an increase in industry concentration YoY, further strengthening the influence of major producers on pricing and transactions.

Second, breaches of long-term contracts forced downstream buyers to raise prices. Stimulated by the recent rebound in lithium carbonate spot prices, lithium hydroxide producers increasingly adopted a price-raising mindset. Some producers showed reduced willingness to fulfill low-priced long-term contracts signed earlier, with some even considering breaching these contracts. Moreover, inventory distribution showed that most stocks were concentrated in upstream lithium chemical smelters, giving them stronger bargaining power and forcing ternary enterprises to raise prices to secure supplies, thereby boosting recent transaction prices.

Third, the price spread between lithium carbonate and lithium hydroxide continued to widen, limiting the room for lithium hydroxide price reductions. According to SMM calculations, based on the current price of lithium hydroxide coarse particles, the cost of producing one mt of lithium carbonate is approximately 85,400 yuan/mt. If enterprises obtain raw materials through long-term agreements and carry out carbonation, the cost would be even lower. Since November, lithium carbonate prices have been rising continuously, while lithium hydroxide prices have not increased significantly. The widening price spread between lithium carbonate and lithium hydroxide has strengthened the motivation for enterprises to engage in carbonation, supporting the bottom of lithium hydroxide prices and further compressing the room for price reductions. This also enhanced the sentiment of upstream raw material producers to hold onto their stocks, narrowing the price spread between lithium carbonate and lithium hydroxide.