Lithium Carbonate Futures Prices Crash Below 100,000 yuan/mt Mark! What Are Key Factors To Keep An Eye On?

Lithium carbonate futures plunged below 100,000 yuan/mt on December 4th's morning trading, hitting a record low of 96,350 yuan/mt by day's end. This marks the seventh consecutive day of decline.

Per SMM, battery-grade lithium carbonate's spot price kept falling. As of Dec 4th, it reached 123,000-133,000 yuan/mt, averaging 128,000 yuan/mt, down 21.95% (36,000 yuan/mt) from early November's 164,000 yuan/mt.

The price rout boils down to supply-demand imbalance.

SMM research indicates that from late October, some overseas lithium mines switched from Q-1 to M+1 settlement, potentially slightly weakening cost support for lithium salt firms buying overseas lithium ore. Also, some lithium salt companies resumed operation in early November after reducing or halting production in October.

Chilean customs data from November 8th shows an 84.3% MoM increase in lithium carbonate exports to China in October, at 16,791 mt. These shipments are expected to reach Chinese ports in November or later. By late November, news of a major salt lake factory releasing 8,000 mt of goods emerged. Coupled with the rapid price drop of 2401 lithium carbonate futures, some trading firms began selling off at low prices.

On the demand side, some cathode material firms had secured pre-New Year sales by November. To avoid losses from depleting raw material inventory during price drops, they have low demand for spot lithium carbonate. This makes it hard to absorb the market's lithium carbonate spot supply. Historically, Q1 sees lower lithium carbonate consumption, suggesting a not optimistic QoQ consumption outlook for the upcoming year's first quarter

SMM advises monitoring factors impacting price. Changes in overseas lithium mines' long-term settlement methods could affect marginal cost changes for lithium salt firms buying foreign lithium ore. These firms' marginal changes in high costs could determine long-term price support for lithium carbonate. However, during price drops with oversupply, these firms' production changes greatly impact domestic lithium carbonate supply's marginal changes.

SMM research indicates falling lithium carbonate prices have pushed some lithium salt companies' production costs above selling prices, affecting procurement and inventory management. One firm has cut production due to consistent losses, basing future plans on long-term order sales. While some firms held maintenance in October, February is a typical maintenance period. Given the continued losses from lithium ore purchases, these high-cost firms' maintenance and production plans will significantly impact domestic lithium carbonate supply's marginal changes.

Market digestion of shipments from a major salt lake enterprise also deserves attention. Q1 next year is projected to have weaker domestic demand. Cathode material companies with previous purchases may lack ongoing procurement needs, likely pressuring the short-term spot price of lithium carbonate. The market's ability to absorb their future sales volumes will also affect spot price fluctuations.

The delivery situation of the 2401 lithium carbonate contract will also influence the price. The Guangzhou Futures Exchange's lenient delivery standards for lithium carbonate may affect some cathode material companies' willingness to accept delivery.

On the other hand, the open interest of lithium carbonate 2401 futures contract is currently at a staggering more than 130,000 lots in less than one and a half months away from its delivery. Under such circumstance, the high ratio of positions for delivery and positions not for delivery could potentially trigger short covering.