SMM Insights on Recent Hot Topics concerning Lithium

During our recent marketing in SG and HK, we met with 40+ clients over the last two weeks. Lithium is most topical within our coverage. The majority of clients, however, are now aware that China's EV subsidy will be partially phased out by the end of 2022, so EV sales may be pulled forward and thus slow down in the first half of 2023.

We expect the turning point in lithium prices may be earlier, at this year end or the beginning of 2023 when China's EV sales start to soften. Below are the most commonly discussed questions related to lithium and our answers provided.

Q1：Battery production cut rumors check:

A: For CATL, its LIB production didn’t cut while it reduced its battery material’s procurement volume (~20%); For CALB, it cuts both its LIB production line & material procurement volume significantly (~30-40%).

The low-mid Ni battery (5&6 series) serves as the major battery type that has been cut. However, the LFP battery production hasn’t been cut given the stable downstream demand for it.

For Lithium carbonate, the domestic demand decreases by 6% in Dec. when comparing with Nov.; For lithium hydroxide demand, the orders remain relatively stable given the stable exporting demand & stable domestic high Ni battery (e.g. 8-series, NCA) demand.

Q2: Inventory positions across lithium supply chain 

A: Currently (22Q4), the inventory of raw materials in refinery is around 1 month (for satisfying 1 month’s lithium salty production)；For cathode manufactures, the inventory is around 2-3 weeks (lithium feedstock for satisfying 2-3 weeks’ cathode production).

Q3: Demand/Supply dynamics for China NEV in 2023 

A: For the demand side, the EV sales volume is expected to slow down in 2023 given the elimination of subsidies and weak macro economy expectation and that will lead to relatively (compare with 2022) weak demand in 2023. The turning point is after CNY and since then, the market will marginally slow down with the lithium salty price declining.

The demand in 2023 for lithium is mainly driven by EV power battery while the energy storage side has the highest growth rate. However, the overall demand growth rate slows down when compare with 2022.

The market is expected to reach over-supply in 2023Q1 (specifically after CNY) given the downstream customer will conduct the procurement for inventory before CNY (for satisfying the production need during CNY holiday). The demand in China in 23Q1 is expected to decrease (-17% compare with 22Q4) and the decrease rate is higher than that of supply (-2% compare with 22Q4). Through the whole year in 2023, the oversupply is due to the release of upstream ore resource and slowing downstream demand.

Q4: Chinese supply, Cost of production

A: The highest cost production refers to the non-integrated (outsource concentrate) lepidolite smelters and in 2022Q4, for such smelters, the cost is around 450 k RMB/LCE ton Li2CO3.

For lepidolite concentrate (Li2O: 2.0-2.5) cost (for producing 1 ton concentrate), the total cost is around 5k RMB/ton concentrate; While for the lepidolite concentrate (Li2O: 2.0-2.5) price currently (2022Q4), the price has reached 13k RMB/ton given the price is based on the downstream lithium salty price. Therefore, the raw material cost for lepidolite smelters has reached nearly 400k RMB/LCE ton Li2CO3 (~30 tons of concentrate is needed for producing 1 ton Li2CO3).