[SMM Analysis] Review of Lithium Hydroxide Market in 2024 and Outlook for 2025

1. Price Review

Lithium hydroxide prices in 2024 can be divided into four phases:

January-February: Supply-demand pattern improved, and lithium hydroxide prices stabilized.

In January, on one hand, the stabilization of lithium ore and lithium carbonate prices strengthened cost support for lithium hydroxide production, leading to stronger sentiment to stand firm on quotes among lithium hydroxide suppliers. On the other hand, some domestic and overseas downstream producers picked up goods in advance before the Chinese New Year, resulting in a deep destocking trend for lithium hydroxide and an improvement in the supply-demand pattern. Consequently, lithium hydroxide prices gradually stabilized from the previous rapid decline. In early February, downstream restocking continued, while during the mid-February holiday period, market transactions were nearly stagnant due to logistics disruptions, and overall prices remained stable.

Late February to Early May: Supply-demand pattern improved, and lithium hydroxide prices rose.

In late February, driven by rising lithium carbonate prices, suppliers became increasingly reluctant to sell, reducing market circulation and stimulating some downstream restocking demand, which pushed up spot transaction prices. March and April continued the upward price trend from late February. The sustained rebound in lithium carbonate prices and bullish expectations for the market further strengthened the sentiment to stand firm on quotes among lithium hydroxide suppliers. With long-term contracts dominating shipments and spot orders withheld, market circulation further tightened. Meanwhile, downstream demand recovered well after the holiday, with production schedules significantly increasing. Due to low inventory levels and reduced customer-supplied materials, some cathode plants faced raw material supply gaps and were forced to purchase at high prices, driving spot prices higher. By late April, although the supply-demand pattern began to ease, pre-Labor Day restocking by some ternary material plants supported prices to remain stable at high levels until early May.

Late May to Early November: Weak demand for high-nickel materials deepened the surplus of lithium hydroxide, and prices declined.

Due to persistently weak demand for high-nickel materials, coupled with a high proportion of long-term contracts and a significant increase in the proportion of long-term supply for cathode materials, the supply-demand pattern remained unfavorable. Industry inventories continued to rise, and lithium carbonate price declines further dragged down lithium hydroxide prices. By late October, as lithium carbonate prices rebounded, lithium hydroxide prices slowed their decline at low levels.

Mid-November to December: Supply reduction and firm pricing sentiment lifted market prices slightly.

With prices at low levels and the widening lithium carbonate-lithium hydroxide price spread, upstream lithium chemical plants exhibited unprecedented sentiment to stand firm on quotes, raising long-term contract discounts and withholding spot orders, which boosted market transaction prices. Before year-end, supply reductions due to maintenance and flexible production line shifts to lithium carbonate further supported firm pricing sentiment. Some demand-side players engaged in spot stockpiling due to the absence of finalized long-term contracts for the new year, pushing prices upward. However, the overall weak demand limited the price increase, resulting in a gradual upward trend.

2. Supply Review

In 2024, China's lithium hydroxide production reached 354,000 mt, up 25% YoY. By raw material, smelting accounted for 321,000 mt (91% of total), up 51% YoY. In H1, the release of new capacity from integrated smelters contributed to the production increase. However, in H2, especially in Q4, the widening lithium carbonate-lithium hydroxide price spread and weak demand limited production growth as more companies shifted flexible production lines to lithium carbonate. On the causticisation side, production reached 33,000 mt in 2024. The widening price spread caused causticisation to operate at a loss throughout the year, with operating rates of old capacity declining and new production lines ramping up slower than expected, keeping overall production at low levels. From the current CR5 market share changes, the industry concentration of lithium hydroxide producers has reached 79%, with integrated lithium chemical plants gaining market share and further enhancing pricing power.

According to customs data, China's lithium hydroxide exports in 2024 were approximately 120,000 mt, down 6.7% YoY. Japan and South Korea remained the main export destinations, with exports to South Korea at 83,400 mt (down 10% YoY, accounting for 70% of total exports) and exports to Japan at 32,000 mt (up 4% YoY, accounting for 27% of total exports).

On the import side, 2024 imports were approximately 8,000 mt, up 1.1 times YoY. Structurally, imports from Chile decreased significantly, while imports from Australia increased notably, driven by the ramp-up of lithium hydroxide production lines in Australia.

3. Demand Review

In 2024, China's lithium hydroxide demand reached 204,000 mt, up 16% YoY, but growth fell short of expectations. Approximately 96% was used in ternary cathode materials, with 4% in traditional industries. In March and April, the launch of new energy vehicles by domestic automakers and price cuts amid cut-throat competition stimulated car-end demand, leading to higher orders for mid-to-high nickel cathode plants. However, the price cuts consumed future demand in advance, and mid-year high-nickel ternary vehicle consumption fell short of expectations. Meanwhile, cathode plants increased customer-supplied lithium hydroxide, executed destocking strategies, and actively consumed customer-supplied raw materials, weakening demand for lithium hydroxide. In H2, the slowdown in electrification in Europe and the US, the main markets for ternary batteries, further limited demand growth for ternary materials. Combined with high inventories at downstream and end-user levels, lithium hydroxide demand remained weak. At year-end, policy uncertainties from the US presidential election prompted Chinese battery plants to rush exports in Q4, resulting in better-than-usual orders for ternary materials. However, this was an early release of 2025 mid-year demand, which could lead to a subsequent demand decline.

4. Supply-Demand Balance

In 2024, lithium hydroxide experienced an inventory buildup, with an annual surplus of approximately 36,000 mt and sample cumulative inventory of 56,000 mt. Before April, pre-holiday stockpiling by the demand side and supply reductions due to pre-Chinese New Year maintenance and production cuts led to some destocking. After April, as new production lines ramped up and demand weakened, lithium hydroxide inventories began to build up. By November and December, significant supply reductions and slight demand decreases led to inventory destocking, but the extent was limited.

II. Outlook for 2025

On the demand side, at the battery cell and battery levels, ternary battery production is expected to decline due to inventory control and weakening rush-for-installations sentiment at year-end. The ongoing implementation of anti-subsidy policies in Europe and the US, coupled with the erosion of the ternary market by cost-effective LFP car models, will limit future growth in ternary battery demand. Weakness in ternary batteries will cascade upstream, reducing demand for ternary materials, with ternary material production and performance also expected to remain subdued.

On the supply side, at the end of Q4 2024, weak overall demand led to more flexible production lines at lithium chemical plants shifting to lithium carbonate. Combined with high inventories at some lithium chemical plants and production cuts for destocking, supply reductions were significant. In Q1 2025, production is expected to remain low due to maintenance and holiday shutdowns during the Chinese New Year. Subsequently, production may see a slight increase due to cyclical demand recovery and post-holiday resumption. In the long term, weak performance in the global ternary market will lead to lower annual demand expectations. On the export side, limited growth in overseas demand is expected due to potential policy constraints on the NEV market from the new US administration and continued inventory buildup of lithium hydroxide at overseas terminals and material plants.

In 2025, lithium hydroxide supply and demand are both expected to decline, with the market maintaining a slight surplus and overall inventory buildup increasing further. Lithium hydroxide prices are likely to continue declining. Although firm ore prices and lithium carbonate prices may strengthen cost support for lithium hydroxide, weakening demand due to ongoing competition from LFP will exert downward pressure on the market, with transaction prices expected to trend lower.