Global lithium resources may continue to be in surplus from 2024 to 2026. What will be the short-term supply and demand for lithium carbonate?

The price drop of lithium carbonate has caused the cost and price of energy storage batteries to decrease rapidly. The data shows the price changes of battery-grade lithium carbonate and energy storage batteries since January 2023. It can be seen that with the continuous decline in the price of battery-grade lithium carbonate, the price of energy storage batteries has also decreased significantly.

In terms of cost, the total cost of lithium iron phosphate batteries in January 2023 was 0.8 yuan/Wh, and by January 2024, the cost had dropped to around 0.4 yuan/Wh, a decrease of approximately 52%.

Long-term Supply and Demand Outlook for Lithium Carbonate

Data shows that from 2019 to 2022, the year-on-year compound growth rate of global new energy vehicle sales was around 69%. By 2022 to 2025, the compound growth rate is expected to reach about 20%, indicating a continued increase in global new energy vehicle sales. By 2025 to 2027, the compound annual growth rate of global new energy vehicle sales is expected to be around 12%. SMM has compiled the distribution of global lithium battery demand by field and type from 2018 to 2027. In 2023, the demand for energy storage batteries accounted for about 17% of the total global lithium battery demand, and this proportion is expected to increase to around 19% by 2024 and to about 23% by 2027. In terms of global lithium battery demand, it is expected that from 2023 to 2027, the compound annual growth rate of global lithium-ion battery demand will be around 25%.

When classified by battery type, in 2023, the demand for lithium iron phosphate batteries was around 56%, while the demand for ternary batteries was around 37%. By 2027, the demand for lithium iron phosphate batteries is expected to increase to about 66%, while the demand for ternary batteries may decrease to around 29%.

Lithium Supply: Lithium Carbonate Production Capacity Expected to Increase in 2024

According to SMM statistics, the global lithium carbonate production capacity was around 1.54 million tons in 2023 and is expected to exceed 2 million tons in 2024. From 2018 to 2027E, global lithium resource supply continues to increase, with the recovery volume gradually increasing. It is expected that in 2024, the global lithium resource supply may reach around 1.3 million tons of lithium carbonate equivalent, an increase of about 28% compared to 2023. In terms of industry concentration, it is expected that the concentration of the global lithium resource industry from 2023 to 2027 may decrease.

In the context of lithium surplus, high-cost lithium production capacity that relies on external lithium ore may face the risk of gradual elimination. Based on SMM research, in the context of global lithium resource surplus, enterprises relying on external lithium ore have higher costs compared to other operating models. As a result, high-cost lithium production capacity may face the risk of gradual elimination. The global lithium resource is expected to be in a surplus state from 2024 to 2026, and the price range of lithium carbonate is expected to face pressure.

Short-Term Lithium Carbonate Supply and Demand Outlook

Lithium Demand: According to previous SMM data, in January 2024, due to the early reserve of power and energy storage industries, the downstream demand slightly slowed down. The battery output in January was slightly lower than in December 2023, but still better than expected. It is expected that due to the impact of the Spring Festival holiday and other factors, domestic lithium battery production may continue to decline in February, gradually recovering in March. After the inventory reduction at the end of 2023, the inventory-sales ratio in January 2024 slightly increased, leading to a slight accumulation of inventory by battery manufacturers.

Positive electrode material production is determined by sales, with companies adjusting production in real time according to demand. With the recovery in demand, subsequent production plans may increase. SMM expects that in March 2024, the monthly production of positive electrode materials in China may reach around 180,000 tons, and in April, it may increase to around 190,000 tons.

Lithium Supply: SMM expects that from 2023 to 2024, domestic lithium resources will continue to be released, but the release rate may be slower than expected due to the current lithium price. The impact of the Spring Festival and concentrated maintenance led to a low point in lithium carbonate production in February. The subsequent recovery in production will lead to a significant increase in supply. SMM predicts that in March 2024, the monthly production of lithium carbonate may increase by 38% compared to February, and the production in April may increase by around 15%. As for lithium carbonate inventory levels, SMM expects the inventory level in China to continue to rise in 2024.

Possible Events and Impacts

1) Some battery manufacturers have placed early orders for positive electrode materials, causing some orders originally planned for March to be moved to January-February, resulting in higher-than-expected operating rates for some positive electrode material producers before the holiday. Additionally, due to the anticipated suspension of logistics during the holiday, positive electrode material manufacturers increased their lithium inventory before the holiday, leading to a slight increase in the price of lithium carbonate at that time. However, considering the uncertainty after the holiday, positive electrode material manufacturers are taking a wait-and-see attitude, limiting the amount of inventory replenishment and suppressing a further increase in the price of lithium carbonate.

2) The cancellation of warehouse receipts for futures contracts in March may cause volatility in the spot market's liquidity. In March, warehouse receipts were cancelled at the Guangzhou Futures Exchange and re-entered the spot market. According to regulations, these goods cannot be re-entered into the warehouse, potentially impacting the spot market. The cancellation of warehouse receipts for futures contracts and the re-entry of related goods into the spot market may have a certain impact on market liquidity, and market participants need to closely monitor this trend and take appropriate measures to deal with potential market changes.