【SMM Analysis】Fluctuations! A Complete Analysis of China's Lithium Market in 2024 (Part 1)

Without noticing it, nearly half of 2024 has passed. Looking back at the lithium carbonate market since the beginning of the year has been tumultuous. Since the beginning of the year, the price of battery-grade lithium carbonate has risen from 96,900 RMB/ton to a high of 113,000 RMB/ton, and then experienced a downward trend in recent days after nearly two months of market fluctuations. This article will analyze in depth the reasons behind the fluctuations in the lithium carbonate market in 2024 from the perspective of supply and demand fundamentals. The analysis will be divided into supply and demand at various stages of the industry. In addition to domestic lithium carbonate production, China is also a net importer of lithium carbonate, and the supplement from the import side should not be underestimated. The demand side will be analyzed based on the conditions of positive electrode materials, battery cells, and end markets.

January-February Review:

Demand side: Historically, after the year-end surge in vehicle sales, vehicle sales usually decline, and the beginning of the year is typically a period of concentrated tenders in the energy storage market. Combined with the impact of the Spring Festival holiday, the first quarter is usually a slow season for demand in the power and energy storage markets, reaching a low point in February due to the lunar new year and Spring Festival effects and gradually warming up after the holiday. Correspondingly, in line with the main theme of sales determining production, production plans for batteries and positive electrode materials remain consistent with changes in end demand. However, due to logistical disruptions during the Spring Festival holiday, early inventory stocking led to a slight increase in positive electrode production in January, which then resumed a downward trend in February.

Supply side: Due to factors such as continuous lithium price declines and cost distortions, some lithium salt companies began to shut down for maintenance in the middle and late January and started their Chinese New Year holidays earlier. As a result, lithium carbonate output began to decline monthly from January and reached a low point in February. At the same time, due to factors such as reduced efficiency in customs clearance during the Spring Festival holiday, imports also showed a downward trend. Balance: With both supply and demand weakening, the balance figures were significantly oversupplied.

March Review: Demand side: After the Spring Festival, leading vehicle companies initiated a price war, and many car manufacturers joined in, continuously lowering prices for various car models. As a result, car sales in March increased by 81%. In the energy storage market, due to the excellent performance of the previous China's large energy storage tendering results exceeding expectations, combined with the demand for stocking brought about by the iteration of battery models, and with the favorable performance of the energy storage market in March due to the low base in February, energy storage battery production increased by 102% compared to February. At the same time, driven by end demand, battery and positive electrode production simultaneously increased significantly. However, most battery factories were concerned that the concentrated stocking in the middle of the year might stimulate a sharp rise in raw material prices in the short term, leading to a significant increase in positive electrode production in the short term. Supply side: After the holiday, some small and medium-sized enterprises in Jiangxi Province faced difficulties in resuming production due to environmental incidents, while most other regions resumed production and output recovery gradually, resulting in a 32% increase in lithium carbonate production in March. With the surge in exports from Chile, lithium carbonate imports maintained a high level from March onwards. Balance: With both supply and demand increasing, the surplus figure decreased slightly due to the faster pace of demand growth.

Others: Given the continuous price decline in the early period, the sentiment of salt factories to support prices is strong; affected by the fermentation of the environmental incidents in Jiangxi, the futures market experienced a significant increase, intensifying the sentiment of salt factories to support prices and withhold sales, leading to a tight spot market. Although imports surged, most arrivals were concentrated in the second half of the month, resulting in a tight spot market in early to mid-month; the role of the futures reservoir continued to expand, absorbing excess levels to some extent, thereby providing some support to prices.

April Review: Demand side: The energy storage market maintains an upward trend, but the overall growth rate has slowed slightly; in the power market, with the end of the quarterly surge in sales and ongoing price wars causing price instability, the details of the old-for-new policy have not yet been implemented. In addition, with the consumer attitude of waiting and seeing strong at the end of the month's auto show, car sales in April showed a slight decline. With the slowdown in terminal demand growth and the early stocking effect, the growth rate in production of positive electrodes and battery cells has gradually decreased. Supply side: The environmental impact in Jiangxi Province has gradually dissipated, but smaller factories continue to face challenges in production due to economic reasons. Sichuan and Qinghai regions have benefited from new capacity ramp-ups, seasonal production increases, and the drive for arbitrage opportunities between futures and spot markets, leading to an overall 24% increase in output. Balance: With both supply and demand increasing, the balance remains slightly oversupplied.

Others: Pre-holiday stocking before Labor Day, combined with a decrease in the customer-to-supplier ratio at the battery cell end, leads to a small increase in demand for spot purchases of lithium carbonate by positive electrode producers; the role of the futures reservoir continues to expand, absorbing excess levels to some extent, thereby providing some support to prices.