[SMM Analysis] subsidies are expected to fall by more than 50 per cent in 2019. there is a strong willingness for mainframe factories to increase shipments in January.

As of January 26, China battery-grade lithium carbonate offers continued to rise, according to SMM prices.

The average monthly price of battery-grade lithium carbonate was 236,478 yuan/mt in December 2021, up 20% on the month. The prices are likely to rise further as the downstream restocking extends.

Cobalt and lithium were undoubtedly the topic of the year which featured recovery and growth. As the shortage of upstream minerals drove up the prices of cobalt and lithium salt, many midstream and downstream enterprises have embarked on the road of competing with upstream miners for cobalt and lithium resources in order to control their costs.

The market sentiment of lithium ore increased further. SQM, the world's second-largest lithium miner, predicted that the average price of lithium will rise by nearly 50% compared to Q3 in Q4.

The new production capacity of lithium resources will be put into operation intensively after 2022-2023, and the production may be lower than expected. It is expected that there will still be a supply shortage of 24,000 mt LCE in 2022.

Most of the companies that extract lithium from salt lakes in South America sell lithium products mainly through long-term contract. And selling prices were low for orders executed in the first half of 2021, most of which were signed at the end of 2020, according to CITIC Securities.

Cobalt raw material inventory (excluding refined cobalt) fell 5,100 mt in metal content in Q1.

The delivery ceremony of a high-pressure reactor, a core equipment of the hydro-metallurgy project at Huayue Nickel & Cobablt (Indonesia) of Huayou Cobalt & Morimatsu, was held at Morimatsu’s Nantong factory on November 20.  Since then, all four high-pressure reactors have been completed and delivered, marking that the Huayue project is about to enter a new stage of key equipment installation.

China has recently released the winter heating season policies for 2020/21, and while the initial view is that supply disruption may be less this year, there are still question marks over the impacts on demand.

The short-term supply tightness of cobalt raw materials lifted cobalt salt prices last week, but limited trades and continued weakness in consumption may cap any rebound in the near-term prices. Prices of lithium carbonate will unlikely to extend declines given the raw materials costs and the trade prospects in Q2 this year.