SMM review of lithium market in H12024

Looking back, lithium carbonate market has been quite volatile since the beginning of 2024. The price of battery-grade lithium carbonate rose from 96,900 yuan/mt to a peak of 113,000 yuan/mt, and after nearly two months of market fluctuations, it has recently shown a downward trend again. This article will make a deep analysis on the reasons behind the ups and downs of the lithium carbonate market in 2024 from the perspectives of supply & demand fundamentals.

The supply and demand sides are divided according to various segments of the industry. The supply side includes domestic lithium carbonate production and imports. The demand side will be analysed from cathode materials, battery cells, and end-users.

January-February Review:

1. Demand side: Historically, after the year-end sales rush, car sales tend to decline. Additionally, the beginning of the year is usually a peak period for energy storage market tenders and welcomes the Chinese New Year holiday. Therefore, NEV and energy storage demand weakens in Q1, reaching a trough in February due to fewer days and the holiday, but gradually warming up after the holiday. Correspondingly, the production schedules for batteries and cathode materials align with the changes in end-user demand. However, in order avoid the logistics disruptions during the Chinese New Year holiday, downstream enterprises made preparations in advance, leading to a slight increase in cathode production in January, followed by a reduction in February.

2. Supply side: Due to the continuous decline in lithium prices and losses, some lithium salt companies began to shut down for maintenance from mid to late January and started their holiday early. Consequently, the output of lithium carbonate declined month by month since January, reaching a low point in February. At the same time, as customs clearance efficiency was hindered by the Chinese New Year holiday, imports also showed a downward trend.

3. Balance: With both weak supply and demand, a significant supply surplus was maintained.

March Review:

1. Demand Side: After the Chinese New Year, leading car manufacturers initiated a price war, with many car companies joining in, resulting in frequent record low prices for various models. Thanks to this, car sales in March rose sharply by 81% MoM. Due to the better-than-expected performance of large-scale energy storage bidding in China, the stockpiling demand brought by the iteration of battery cell models, and the low base in February, the energy storage market performed well in March. The output of energy storage battery cells increased by 102% MoM. At the same time, driven by end-user demand, the scheduled production of battery cells and cathodes rose sharply synchronously. However, most battery cell manufacturers, fearing that the concentrated purchase during the mid-year peak season might stimulate a short-term sharp rise in raw material prices, pre-stockpiled battery cell products and cathode materials, leading to a significant short-term increase in cathode production.

2. Supply Side: After the holiday, some small and medium-sized enterprises in Jiangxi faced obstacles in resuming production due to environmental incidents, while companies in most other regions restarted and increased output smoothly. With the gradual recovery of production, lithium carbonate output in March increased by 32% MoM. The surge in exports from Chile also led to a high level of lithium carbonate imports starting from March.

3. Balance: As demand grew more than supply, oversupply was alleviated.

4. Others: Amid early continuous price declines, lithium salt smelters held prices firm. The environmental incident in Jiangxi led to a sharp rise in the futures market, making lithium salt smelters even more determined to hold back or maintain prices, resulting in tight spot supply. Although imports surged, most port arrivals were concentrated in the second half of the month, leading to tight spot supply in the first half of March. Some excessive cargos flowed into the futures market, thereby providing some support for prices.

April Review:

1. Demand Side: The energy storage market maintained an upward trend, but the overall growth slowed slightly. In the NEV market, as the quarter-end sales rush ended, vehicle prices fluctuated amid the persisting price war. The details of the trade-in policy have not yet been determined, and with the auto show at the end of the month, consumers exhibited a strong wait-and-see sentiment. As a result, car sales in April dropped slightly. In the short term, with the slowdown in end-user demand growth and the effect of pre-holiday stockpiling, the scheduled production growth of cathodes and battery cells gradually decreased.

2. Supply Side: The impact of environmental incidents in Jiangxi gradually dissipated, but small and medium-sized manufacturers still faced difficulties in resuming production due to poor profit margins. In Sichuan and Qinghai, new capacity ramp-up, seasonal production increase, and arbitrage opportunities drove an increase in outsourcing orders, bringing an overall output increase of 24% MoM.

3. Balance: With both growing supply and demand, slight supply excess persisted.

4. Others: Pre-holiday stockpiling for the Labour Day holiday and a decline in the proportion of customer-supplied raw material from battery cell makers led to a slight increase in spot lithium carbonate purchases. Some excessive cargos flowed into the futures market, thereby providing some support for prices.

In the future, SMM will continue to analyze the current state of the lithium carbonate market and the performance of various segments of the lithium battery market in May.