SHANGHAI, Mar 21 (SMM) - Recently, the Ministry of Industry and Information Technology has held discussions with some lithium salt companies on the issue of surging lithium prices. News that the lithium prices will be controlled to return to the normal level has been widely spread. On March 18, the situation that the lithium carbonate 2204 contract closed down by about 5% once triggered a heated discussion in the market, which was contrary to the spot price trend and brought a certain panic to the market.
However, some insiders said that the falling futures price of lithium carbonate but normal spot prices were mainly due to some traders dumping the goods. SMM, too, believes that the small-scaled transaction in the futures market has limited feedback on the actual trading in the spot market. The prices mostly reflect the sentiment in the market, which should be treated carefully.
On the news front, to ensure the supply and price stability of lithium resource products and promote the development of new energy vehicles and power batteries, the Department of Raw Materials Industry and the Equipment Industry Division I of the Ministry of Industry and Information Technology, together with the Price Department of the National Development and Reform Commission, the Price Supervision, Inspection and Anti-Unfair Competition Bureau of the General Administration of Market Supervision, organised a symposium on the operation of lithium industry and the price increase of upstream materials of power batteries on March 16 and 17. Responsible persons of key enterprises in the upstream and downstream of the industrial chain, such as lithium resource development, lithium salt production, cathode materials and power batteries, participated in the meeting.
The meeting requested that upstream and downstream enterprises in the industrial chain should strengthen the docking of supply and demand, and strive to work together and form a long-term and stable strategic cooperative relationship. Besides, the meeting urged the upstream and downstream enterprises to jointly guide the rational return of lithium salt prices. What’s more, the upstream and downstream companies should make every effort to ensure supply to better support the development of strategic emerging industries such as new energy vehicles in China.
This is not the first time that the Ministry of Industry and Information Technology of the People's Republic of China and other departments have mentioned the price stabilization of resource-related products. Previously, Xin Guobin, vice minister of the Ministry of Industry and Information Technology, publicly mentioned that the domestic should focus on meeting the production needs of power batteries, accelerate the development of lithium, nickel and other resources moderately in China, and crack down on unfair competition behaviours such as hoarding and driving up prices.
In addition, during the Two Sessions of 2022, some leaders of lithium companies submitted relevant proposals. Zeng Yuqun, chairman of CATL submitted Proposal on Taking Effective Measures as soon as possible to Promote Domestic Lithium Resource Supply and Price Stabilization. He said that the current supply and demand of lithium resources are poor, and the exploration and development of domestic lithium resources should be accelerated to ensure the supply chain. At the same time, independent innovation and scientific and technological research should be strengthened to improve the level of resource recycling and efficient utilization.
Affected by the sharp increase in the price of lithium-related products, the cost pressure of power battery enterprises has increased. Some enterprises that do not have sufficient reserves and supply sources of lithium resources cannot bear the surging lithium salts prices such as lithium carbonate. When Tianneng released its 2021 report, it was mentioned that, because the prices of main raw materials for lithium batteries increased greatly and continuously, although the company ordered a certain amount of raw material through price locking, it still could not hedge the cost pressure brought by the price increase of raw materials. Therefore, Tianneng's gross profit margin of lithium batteries was lower than that of the same period last year. Farasis Energy also mentioned in its 2021 financial report that the prices of raw materials of the main products have risen sharply, and the cost of materials increased. However, due to the lag of price adjustment, the prices of products failed to rise in time with the rising trend of power battery materials during 2021, which once led to pressure on the company. At present, the selling prices of most products have been adjusted.
In addition to power batteries, more and more new energy car companies are starting round and round of price hikes. Tesla achieved three consecutive rises within seven days. Recently, in response to the rising prices of upstream raw materials, some models of Xpeng Motors, Weltmeister and ORA started a new round of price increases. Some institutions believe that the first price increase of new energy vehicles in 2022 is mainly to cope with the decline of subsidies for new energy vehicles, while the second price increase is to cope with the cost pressure.
It is maybe against this background that the Ministry of Industry and Information Technology of the People’s Republic of China and the other four departments emphasise the problem of ensuring the supply and price stability of lithium resources again. Recently, under the background of high lithium price, the rising trend of lithium salts such as lithium carbonate is curbed. In the spot market, according to the spot price of SMM, as of March 21, the spot price of battery-grade lithium carbonate was 503,000 yuan/mt in China, up by 30,000 yuan/mt from the beginning of the month. The increase was slower than before.
On the fundamentals, according to the latest research of SMM, the overall lithium carbonate supply has increased. First of all, lithium salt suppliers maintain a high operating rate. Meanwhile, the newly added capacity of some plants is still climbing. Secondly, the temperature rises in Qinghai. SMM expects the output growth rate of lithium carbonate to reach 26% in March. According to previous data, lithium carbonate imports will gradually recover from the impact of overseas Christmas holidays and Chinese New Year holidays after March or April, and there will be a certain degree of centralised arrivals at ports. Therefore, the lithium carbonate supply in China will be effectively alleviated.
On the demand side, the downstream ternary was affected by the “Black swan” incidents of nickel prices. The material factory still hesitates about the subsequent orders, and the wait-and-see sentiment is aggravated. The lithium continues its game between the battery factory and holds wait-and-see sentiment. The overall demand for lithium carbonate increases slightly, with a growth rate of only 4%.
In the spot market, the transactions were less. Some traders dumped their goods because of the long-term stagflation of prices, which widened the traded price range and resulted in some low-priced transactions. SMM expects that the prices of lithium carbonate may be stable or slightly pulled back.
