SHANGHAI, Aug 26 (SMM) – On August 15, Sichuan, beset with high temperatures and heat waves, introduced power rationing policy, which forced enterprises to suspend the production. As a result, the lithium salt supply was affect as the production such as cathode materials and batteries was disrupted. It is known that Sichuan is home to spodumene smelters, one of the hardest hit link in the lithium salt industry chain. In addition to restricted production, the power rationing also boosted the spot prices of lithium salt, which have increased more rapidly than before. SMM provides its analysis of lithium salt as follows from the perspective of price.
Fundamentally, a total of about 2,600 mt of lithium carbonate production was cut due to the power rationing, accounting for 8% of the overall production of the industry. On the demand side, Sichuan is also the production centre of many large LFP and NMC material producers. In addition, the low operating rates of some battery enterprises in Sichuan also led to a falling demand, thus it is expected that during this 10-day power rationing, 3,101 mt of lithium carbonate was lost on the demand side. Altogether, it is expected that the supply shortfall will be down by about 500 mt in August. As a matter of fact, as the supply and demand both declined, the gap between supply and demand could hardly support the rapid growth in prices.
However, the spot supply from the upstream was curtailed by the power rationing in Sichuan. At the same time, despite many plants in Qinghai maintained normal production, the spot supply still faced great uncertainty due to COVID lockdown. At present, the spot supply is mostly concentrated in the hands of small and medium-sized lithium salt plants and lepidolite manufacturers as well as some traders in other parts of China. Since overall supply was small, he upstream traders were rather bullish and reluctant to sell. That was why the quotations of lithium salt kept advancing with a few trades made at high prices. In terms of downstream, suppliers in Sichuan stopped the operation due to high temperatures, and there remained a great risk of delay in the delivery of subsequent long-term orders. At the same time, although most large plants stood wait-and-see state, some still made a few purchases at highs out of positive outlook for the market. Small and medium-sized enterprises also purchased as needed. In this case, the prices of lithium salt rose further.
In terms of market forecast, from a fundamental point of view, the supply is expected to rise significantly in September if the power rationing ends. Considering that some enterprises will still maintain low operating rates due to a lack of raw materials, the supply is estimated to increase 7%. On the demand side, under the support of the rising terminal demand and the ramp-up of LFP production capacity in many plants, the demand for lithium carbonate is expected to increase 11%. In addition, the gap between supply and demand is forecast to expand in September. While as the pandemic in Qinghai is expected to be eased in September, the increase in shipment is likely to alleviate the tight spot supply in the market. Despite of the slightly expanding gap between supply and demand, the overall price growth may remain stable or drop slightly. However, it should also be taken into consideration that power rationing in Sichuan might extend, and the recovery of pandemic in Qinghai might be slower than expected apart from other unexpected factors in other domestic regions. If so, traders should stay alert to the following weakening demand.