SMM Detailed Analysis Of Lithium Carbonate Market Dynamics From Supply & Demand And Cost Perspectives

SHANGHAI, Oct 12 (SMM) – After the 8-day long National Day holiday, the traditional peak season of "Golden September and Silver October" has already passed halfway. However, the previously struggling lithium carbonate failed to "revive" under the boost of the peak season. Instead, it faced a significant slowdown in the growth of the new energy vehicle market and a lower-than-expected increment in the energy storage market. Because the failure of traditional seasonal stockpiling of lithium carbonate in the lithium-ion battery industry chain in August and September, the continuous decline in lithium salt prices caused the price to fall below the 170,000 yuan/mt threshold in September. According to SMM spot quotations, the price of battery-grade lithium carbonate showed a downward trend in September, with the average domestic spot price ranging from 160,000 to 178,000 yuan/mt, and an average price of 169,000 yuan/mt. This represents a decrease of 39,000 yuan/mt or 18.75% compared to the price of 208,000 yuan/mt on August 31st, as of September 28th.

The price of lithium carbonate has been declining, and multiple lithium salt plants have reduced production. With the continuous decline in the price of lithium carbonate, coupled with poor demand downstream, lithium salt plants who source raw material externally are inevitably faced with the phenomenon of cost inversion, resulting in multiple lithium salt plants reducing production. On September 27th, Chinese lithium giant, Zhicun Lithium, announced that the company has decided to conduct repairs on some of its equipment in certain facilities from September 29th, 2023, to October 25th, 2023. It is expected that this maintenance will result in a reduction of approximately 3,000 mt of lithium carbonate production for the company in October.
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.

Due to cost inversion, lithium salt plants were eager to raise prices, but downstream players have gained more bargaining power. With the current price of lithium carbonate remaining at a low level, the price of lithium salt has already exceeded the actual production cost of many smelting companies who rely on external ore. According to SMM research, there was still a trend of increasing cost inversion between smelters' production costs and lithium salt prices, resulting in a significant narrowing of smelter profit margins. For upstream Australian mines, SMM's research shows that due to China's dependence on lithium salt imports and the problem of lagging historical ore settlement mechanisms, the price drop of ore is far slower than the decline in the price of lithium salt. As of October 10th, the spot price for spodumene concentrate (CIF China) had fallen to $2,300-2,820/mt, with an average price of $2,560/mt, down 53.5% from the end of 2022, when it was $5,505/mt. The average price for battery-grade lithium carbonate is currently 169,000 yuan/mt, down by 343,000 yuan/mt or 66.99% from the end of 2022, when it was 512,000 yuan/mt. It can be seen that the drop in overseas spodumene concentrate prices is slightly slower than the decline in domestic lithium salt prices.

With weak expectations for supply and demand in the future, how will the price of lithium carbonate evolve?

Certainly, as the price of lithium carbonate continues to decline, according to SMM research, the production of various raw materials for lithium carbonate has already started to decrease to varying degrees, and there is an expectation of continuous reduction in the future. On the demand side, SMM's research shows that both the power and energy storage sectors are performing below expectations. The battery cell segment and positive electrode materials segment are primarily consuming their own inventories, with little significant replenishment demand. Previously, the industry chain had some expectations of demand stimulation during the traditional peak season. However, based on the actual performance from the positive electrode materials segment, most manufacturers began receiving order cuts in mid-September, and there have been varying degrees of decline in October's production plans. Regarding future expectations, in the context of weak supply and demand expectations, SMM believes that it will be difficult to boost lithium carbonate prices significantly through demand stimulation alone. Instead, future lithium carbonate prices will be more influenced by cost support. At present, many lithium salt plants relying on external ore are already facing losses. However, it is a critical period for negotiations between lithium salt plants and Australian mining companies on the pricing of spodumene for the fourth quarter of this year and next year. There may be changes in the pricing mechanism. It will be crucial to continue monitoring the high-level cost support, as it may have a significant impact on the price trend of lithium carbonate in the fourth quarter.