Stimulated by Maintenance of Major Lithium Salt Plants and Oversold Rebound, Lithium Carbonate Futures Prices Once Surged by Over 6%: What Are the Market Expectations for July? [SMM Newsflash]

On the afternoon of June 26, the most-traded lithium carbonate contract rose all the way, with the intraday highest increase once reaching 6.08%. Although the increase narrowed slightly near the close, the final growth was still considerable. As of the daytime close, the most-traded lithium carbonate contract reported a 5.11% increase at 92,550 yuan/mt.

In terms of news, on the evening of June 25, Zhichun Lithium Industry, a giant in China's lithium salt industry, announced on its official WeChat account that according to the annual routine summer maintenance plan, its two wholly-owned subsidiaries, Jinhui Lithium and Tianzhuo New Materials will carry out phased and orderly summer maintenance work on the lithium carbonate production lines starting from July 1, 2024.

In addition, ExxonMobil Lithium, which plans to become one of the world's largest lithium suppliers, also conveyed related bullish news. Patrick Howarth, Global Business Manager of ExxonMobil Lithium, mentioned in an interview with the media during an industry conference in Las Vegas that behind the current bearish sentiment is the growing demand for electric vehicles and the Li-ion batteries used in them. He stated that the world's demand for lithium far exceeds the current production volume, which has become a consensus in the industry.

On June 25, ExxonMobil, the American energy giant, stated that it had signed a non-binding agreement with SK On, a battery subsidiary of South Korea's SK Group, to supply lithium from its proposed Arkansas project to SK On. In November 2023, ExxonMobil announced plans to extract lithium from brine in Arkansas, a region believed to contain significant lithium metal deposits. The planned project will extract lithium from underground brine deposits and convert it into battery-grade material on-site in Arkansas. The company stated that the agreement with SK On could be a multi-year off-take agreement, with a maximum of 100,000 mt.

The strong rebound in lithium carbonate futures prices was also partly due to a current correction from the previous super drop. On June 24, the most-traded lithium carbonate contract once fell by more than 5% in a single day.

As for the performance of the spot market, according to SMM, as of June 24, the offer of battery-grade lithium carbonate slightly fell by 100 yuan/mt to 89,000-94,400 yuan/mt, with an average price of 91,700 yuan/mt.

According to an SMM survey, the current price of lithium carbonate has already touched the cost line of some producers. Therefore, some lithium salt plants have recently started to hold their offers firm and refrain from selling due to cost factors. However, some still sell in small quantities according to market conditions, causing slight loosening in supply-side prices.

Although some downstream buyers negotiated lower-priced purchases with lithium salt plants and traders after the futures prices dipped a few days ago, the purchase volume was small and had little impact on the market. Some cathode material companies, approaching the end of June, also showed sluggish purchases. Due to a relatively pessimistic outlook for the July market and the unclear bottom of the current lithium salt prices, they currently remain cautious and mainly rely on long-term procurement contracts.

Therefore, overall, SMM believes that in the short term, the spot price of lithium carbonate is expected to fluctuate downward amid sluggish downstream demand in July.

Institutional Comments

Xinhu Futures stated that on June 25, Zhichun Lithium announced that its two subsidiaries would carry out phased and orderly summer maintenance work in July. This maintenance will cause limited reduction in lithium carbonate production. However, in an undervaluation state, the market is more sensitive to bullish news, leading to a significant rebound in the market. Investors are advised to manage their positions well and not to chase shorts in the short term. In the medium term, supply surplus remains unchanged. It is recommended to pay attention to the opportunity to short on rebounds.

Minmetals Futures stated that the downstream has recently entered a relatively off-season in mid-year, and the pattern of strong supply and weak demand may continue for several weeks. The previous decline in lithium carbonate futures prices was significant, with a rapid surge at the end of the session. Currently, the upstream shows a strong willingness to hold prices firm, while some downstream companies make purchases to meet long-term contracts and achieve self-supply of raw materials except those supplied by customers. Attention should be paid to the impact of upstream production cuts and improved macro sentiment on the market.

Nanhua Futures stated that under significant supply pressure and the phased weakening demand from cathode materials, the price of lithium carbonate futures is expected to be under pressure from June to mid-July. The short-term bearish factors have quickly materialized, narrowing the profit margin of short positions. The output reduction signal from lithium salt plants in Jiangxi indicates a rebound risk.

Guotai Junan Futures commented that lithium carbonate futures prices have seen a significant rebound from the low, with the basis between futures and spot prices turning from positive to negative. The rebound in lithium carbonate prices reflects the solid cost support below. At the current price, the loss for purchasing spodumene concentrate exceeds 10,000 yuan/mt, and the loss for purchasing lepidolite concentrate is about 4,000 yuan/mt. The significant loss makes it difficult for such lithium salt plants to sustain production and operation in the long run. The potential early arrival of production cuts may improve the pattern of increased supply and weak demand. Meanwhile, some leading lithium salt plants have started routine summer maintenance, tightening the supply side. In this context, the bottom of lithium carbonate prices forms. On the other hand, the transfer of funds between contracts has increased the volatility of lithium carbonate futures. As the 2407 contract is about to enter the delivery month, shorts are gradually closing their positions in the 2407 contract, amplifying the rebound. Currently, it is a critical point for the main contract to switch months before the concentrated cancellation period, with frequent capital flows between long and short positions, leading to significant price fluctuations. Pay attention to changes in open interest.