Lithium Carbonate Futures Hit New Low, Long-Term Supply Pressure Is Enormous

Since the beginning of November, the price of lithium carbonate futures has been falling. On November 7, it once fell to a low of 141,200 yuan/mt, a new low since the futures were launched. As of the close, the most-traded lithium carbonate futures contract dropped 4.33% to 142,550 yuan/mt.

According to SMM research, the current lithium carbonate in the domestic market is still mainly purchased and sold under long-term contracts. Only a small amount of lithium carbonate have been traded in the spot market recently, and the spot price has shown a downward trend. As of November 7, the spot quotation of domestic battery-grade lithium carbonate has fallen to 153,000-164,000 yuan/mt, with the average price quoted at 158,500 yuan/mt, a new low since September 22, 2021.
In addition, SMM has recently learned that some downstream cathode material companies are selling some lithium carbonate, which reflects that the downstream market is still focusing on reducing inventory in the short term in order to compress the inventory cycle, reduce costs and increase efficiency.

There have been rumours earlier that an Australian lithium mine will gradually shift its pricing method from the Q-1 lithium salt price to the M+1 method. Although this pricing method is still under negotiation and has not yet been fully implemented, a Brazilian mine has previously confirmed it will settle lithium ore price will using the average price of SMM battery-grade lithium carbonate plus a discount coefficient after arriving at port. There are signs of marginal weakening in the purchase cost of lithium ore.

In the early period, the price difference between the lithium carbonate 2401 futures contract and the 2407 futures contract of the Guangzhou Futures Exchange once reached around 28,000 yuan/mt, which was a relatively high level since the futures were launched. The logic of short-term price fluctuations has not changed much, and the forward-month contract price is at a relatively low level. Under the influence, investors carrying out arbitrage operations has narrowed the price difference between near-month and forward-month contracts.

Upstream lithium salt plants have the habit of year-end seasonal maintenance, salt lake lithium carbonate production may also experience seasonal reductions around the Spring Festival, which may provide some support for subsequent market prices. We need to pay attention to the market's lithium carbonate market production schedule in the future.

As mentioned above, the reason why the spot price of lithium carbonate has been falling continuously since September is inseparable from the fundamental imbalance between supply and demand. According to SMM research, since mid-October, the overall lithium carbonate supply side has shown a trend of recovery. Smelters who undertook maintenance or reduced production previously due to cost inversion have gradually begun to resume production. From the perspective of imports, overseas salt lake enterprises tend to ramp up shipments to China to meet their annual targets.

However, looking at the demand side, this year's peak season (Sep-Oct) was disappointing. According to SMM research, both the battery battery end and cathode material makers have cut their production. The decline in production is obviously contrary to the upward trend in automobile sales, reflecting the fact that there is a lot of inventory held by NEV and energy storage enterprises at the end of the year that needs to be consumed urgently. SMM believes that if the subsequent demand is in line with expectations, the industry will still focus on destocking. Lithium carbonate companies will produce on demand, and will also lower production to align with the decline in battery cell production schedules. Based on the above situation, SMM predicts that the lithium carbonate market will still be oversupplied in the future.
In terms of lithium carbonate futures, around October 12 and 13, due to the large influx of funds, the gap between futures and spot prices widened, and the price of lithium salts at that time left most smelters in losses. As a result, many upstream companies cut and suspended production. Driven by bullish sentiment and other factors, lithium carbonate futures once hit the upside daily limit, rising sharply for two consecutive days. At the same time, the cost issue has also triggered heated discussions in the market. Shao Wanzhen, head of the green finance and new energy team of Guotai Junan Futures Research Institute, mentioned in an interview with Futures Daily that the current overall trading logic of lithium carbonate futures is a cost issue. In the future, the core trading logic of futures will remain unchanged. As ore prices gradually loosen, lithium salt plant pricing is expected to be in a gradual downward track. In the medium to long term, lithium salt prices will still be vulnerable to decline.

At the 2023 European Lithium Battery Conference held recently by SMM, SMM research manager Ma Rui also mentioned that cost is crucial to lithium smelters. Taking the production cost of lithium carbonate in the third quarter of 2023 as an example, the total production cost of lithium salt depends largely on the nature of the raw materials and their procurement methods. The cost of producing lithium carbonate from salt lakes is the lowest, and the production costs of smelters who have their own spodumene and lepidolite are more reasonable. The cost of relying on external procurement of raw materials is significantly higher, and when resources are in short supply, the difference in production costs of integrated and non-integrated lithium salt smelters will be magnified.

Judging from the costs in the fourth quarter, Xu Ying, a senior lithium analyst at the New Energy Division of the SMM Industry Research Institute, said that smelters who have their own lithium resources and those who source lepidolite still have certain profit margins while whose who source spodumene externally are suffering. “At present, some companies have developed new pricing methods with overseas mines, which will maintain a certain profit margin in the smelting process. However, there are still some companies that have not reached negotiation or are in the process of negotiation, and they deserve attention in the future. "

Zhang Tiangang, the person in charge of the lithium carbonate intelligent manufacturing project of Shenzhen Dawei Co., Ltd. in Hunan Chenzhou, also mentioned that the costs of different companies vary greatly. The price of lithium salt is around 150,000 yuan/mt, which will put pressure on some lithium salt companies and even bring losses to a small number of companies. Yet, for companies with their own high-quality resources, the current profits are still very generous. He believes that the current price of lithium carbonate has only compressed the huge profit margin two years ago to the current normal level, and has not yet led to overall losses in the industry.
Looking at the long-term perspective, SMM believes that 2023-2024 will enter a period of concentrated release of lithium resources, the resource balance will be reversed, and resource excess will continue in the long term. Under the context of excess resources, high-cost resource projects will face the risk of being eliminated.