【SMM Analysis】What is the reason behind the strong surge in lithium prices this round?

Since entering November, the price of battery-grade lithium carbonate has continued to rebound, with a significant increase this week. On November 13, the SMM battery-grade lithium carbonate index price was 77,933 yuan/mt, up 1,361 yuan/mt from the previous working day; battery-grade lithium carbonate was 76,400-80,000 yuan/mt, with an average price of 78,200 yuan/mt, up 1,500 yuan/mt from the previous working day; industrial-grade lithium carbonate was 73,850-74,850 yuan/mt, with an average price of 74,350 yuan/mt, up 1,500 yuan/mt from the previous working day.
From today's market transaction performance, stimulated by the higher-than-expected end-use demand in November, the production schedule of cathode materials has significantly increased, boosting the demand for spot lithium carbonate procurement. At this peak season period, upstream lithium chemical smelters have a strong sentiment to stand firm on quotes, significantly raising their prices. Downstream material plants are cautious about the current price levels, resulting in reduced transaction activities. Most market transactions are between dealers and lithium chemical smelters, pushing up the price center of spot lithium carbonate transactions.

SMM Battery-grade lithium carbonate price (unit: RMB/ton）

Data source: SMM

The underlying reasons can be analyzed from the supply-demand fundamentals:

Demand side:
(1) NEV market: The national trade-in policy has significantly boosted car consumption, with car shows and promotional activities flourishing in many places, and new car models being intensively launched by enterprises, driving the car market's heat to continue rising. In October, car sales achieved higher-than-expected growth both MoM and YoY. With the cumulative effect of policies continuing to show, coupled with the year-end sprint of car companies and dealers, car consumption demand is expected to continue to be released, and the car market is expected to maintain an upward trend in the next two months.
(2) Energy storage sector: Driven by the year-end grid-connected installation demand, the domestic energy storage market demand remains high. In the overseas market, the European market shows mediocre performance. In the US, following the election results, according to Trump's policy direction, there will be more emphasis on supporting and expanding traditional energy.
In the short term, during the power transition between the Democratic and Republican parties, the future support policies for new energy are highly uncertain, so some US energy storage projects may choose to "rush installation" to obtain existing subsidies. (For details, see the SMM analysis article on November 6, 2024: [SMM Analysis] Party and Government Transition! What Impact Will It Have on the US Energy Storage Market https://t.smm.cn/6iCV42Vc)
(3) Battery cell and main materials: In October, driven by the peak season demand from downstream, the production of NEV and energy storage batteries both increased MoM. Looking ahead, driven by the continued high demand in November and the pre-stocking demand from some end-use sectors, the production of NEV and energy storage batteries is expected to maintain growth.
Corresponding to the material side, driven by both the NEV and energy storage markets, the production of LFP material showed strong performance. In October, China's LFP production was 260,700 mt, up 4% MoM, with a YoY increase of over 100%. Looking ahead, in the NEV market, car companies are rushing to meet subsidy policies by year-end, and the decision cost for consumers to purchase mid-to-low-end car models is significantly lower than for high-end models. With the significant cost advantages of LFP, the rush in the NEV market drives the stocking demand for LFP material. In the energy storage sector, due to the policy uncertainties in the US market, under the expectation of tightening tariffs, energy storage companies are concentrating on exporting, with the rush installation stimulating intense new demand. Driven by both factors, the production schedule of LFP is expected to remain strong, with a 7% MoM increase expected in November.
(4) Total demand: Mainly driven by the steady increase in the production schedule of LFP material, China's total demand for lithium carbonate in October was 88,000 mt, up 3.7% MoM, with a 4% MoM increase expected in November.

Supply side: In October, China's total production of lithium carbonate was about 59,700 mt, up 4% MoM from September. On one hand, driven by downstream demand, the production of lithium carbonate in some lithium chemical smelters increased; on the other hand, some lithium hydroxide production lines switched to lithium carbonate, supplementing domestic lithium carbonate production. Meanwhile, driven by futures hedging profits, non-integrated smelters can use hedging and tolling business methods.As a result, the overall production trend remains upward. Entering November, stimulated by the continued rise in downstream demand, the production schedule of some lithium chemical smelters will increase. Additionally, there will still be supplementary production from lithium hydroxide switching to lithium carbonate, and the total domestic production of lithium carbonate is expected to steadily increase, with a 6% MoM increase expected.

Supply-demand balance: With strong supply and demand, domestic production still cannot fully meet the demand, maintaining a significant destocking trend in October and November. This will support prices from the fundamentals.

Additionally, from the sentiment perspective, boosted by the auction prices of overseas companies, and with several lithium mine companies at the marginal cost high announcing maintenance/pauses for their resource projects, and the lower-than-expected production of several new projects led by Argentina, although the impact on current resource supply is small, it helps ferment the sentiment for spot and futures prices. Overall, driven by both fundamentals and sentiment, prices have shown a strong rise.