Citi has initiated a 30-day upward catalyst observation for Ganfeng Lithium, with domestic downstream demand expected to rebound in March?

As of February 23, Citi released a report announcing that it has started a 30-day upward catalyst observation for Ganfeng Lithium. It pointed out that as the seasonal impact of the Lunar New Year is diminishing, a new round of restocking in the battery supply chain is expected in the next few weeks. Battery demand and production are anticipated to record month-on-month growth in March. The increase in demand, coupled with the stabilization of spodumene prices, is likely to be a positive catalyst for Ganfeng Lithium's stock price, with a target price of HK$37.7. Citi has given a buy rating to Ganfeng Lithium. Considering the long-term contracts signed with its main customers, Citi regards Ganfeng as a high-quality supplier of lithium compounds. Ganfeng has withstood the test of the sharp decline in lithium prices over the past few months. It is also pointed out that most of the company's high-cost inventory was consumed or written off during the second to fourth quarters of last year, so the performance is expected to have bottomed out. In addition, Citi expects post-Chinese New Year demand to rebound, which could also present a new restocking opportunity for the battery supply chain and the lithium industry. On the domestic downstream demand side, according to SMM research, there is an expectation of year-on-year growth in March, whether it is in battery, cathode, or terminal new energy vehicle sales. Specifically looking at cathodes, while terminal demand in January remained weak, some cathode companies, anticipating holidays in February, advanced some of their February production plans into January to pursue scale effects, resulting in a slight increase in total output. In February, as the year-end approached, most manufacturers gradually entered the holiday period, leading to a significant decline in output. With the end of the holidays and the rebound of terminal demand in March, order volumes are expected to increase. In terms of batteries, the expectation of weak demand from the energy storage end-users continues, and battery cell companies are controlling production based on sales and strictly managing inventory levels. SMM expects a gradual warming of the market after March, with an estimated year-on-year growth in battery production of around 35% in March. Regarding the terminal new energy vehicles, following the year-end sales push, dealership inventory levels were high. Expectations of inventory reduction, combined with the impacts of the traditional off-peak season, led to significant pressure on car sales. In March, as automakers ramp up price promotions, new energy vehicle sales may be stimulated to grow. At the same time, on the supply side, lithium carbonate production in March is expected to show a month-on-month growth of about 38% compared to January and the Spring Festival holidays in February, as lithium salt enterprises finish maintenance and continue to ramp up production capacity. Regarding imports, SMM expects the volume of imported lithium carbonate in March to recover compared to the previous two months. It should be noted that on February 26, the spot price for battery-grade lithium carbonate slightly increased to RMB 94,300 to 99,000 per ton, with an average price reported at RMB 96,650 per ton, rising by RMB 500 per ton from the previous low point.