Amid a market landscape characterized by a supply-demand mismatch, lithium carbonate prices have repeatedly hit new lows. On May 29, the most-traded lithium carbonate futures contract fell below the important threshold of 60,000 yuan/mt, closing at 58,860 yuan/mt. As lithium carbonate prices continue to decline, the hedging demand of industrial enterprises has gradually increased. On May 26, Salt Lake Potash announced its intention to conduct lithium carbonate futures hedging operations to mitigate the impact of lithium carbonate price fluctuations on the company's production and operations and effectively hedge against market risks.
For the lithium battery industry, it is not uncommon for industrial enterprises to issue hedging announcements. According to observations by reporters from the Futures Daily, nearly 70 publicly listed firms, including Ganfeng Lithium and CATL, have previously issued announcements regarding hedging. However, against the backdrop of the continuous decline in lithium carbonate prices, Salt Lake Potash's announcement on hedging has attracted significant industry attention, with many industry insiders viewing it as a signal that lithium carbonate prices will continue to fall.
"Although Salt Lake Potash has cost advantages, it still needs to lock in sales prices through futures instruments to prevent further erosion of profits due to potential price declines in the future," explained Yu Shuo, an analyst at Chuangyuan Futures. He noted that the technology for extracting lithium from salt lakes is at the bottom of the cost curve. As a leading enterprise in the salt lake sector, Salt Lake Potash's announcement on hedging resonates with the weak fundamentals of lithium carbonate, reinforcing the market consensus that prices have not yet bottomed out. It also suggests that the current market landscape of supply-demand mismatch is unlikely to improve in the short term.
According to reporters, due to differences in process routes, methods, raw material sources, labour costs, energy consumption costs, and depreciation rates, there are significant variations in the production costs of lithium carbonate among different enterprises. Currently, lithium carbonate is mainly produced through three methods: extraction from spodumene, lepidolite, and salt lake brine. The processing costs vary greatly depending on the type of lithium ore being mined. The current mainstream production cost of lithium carbonate in the market ranges from 75,000 to 85,000 yuan/mt. For some low-grade lepidolite ore lithium extraction projects, the full cost ranges from 80,000 to 90,000 yuan/mt, while the production cost for integrated enterprises is approximately 75,000 yuan/mt. Projects involving externally purchased ore have higher costs, with some even exceeding 90,000 yuan/mt. The costs of some competitive projects can be as low as 60,000 yuan/mt. For example, a publicly listed lithium battery material enterprise with an annual production capacity of 30,000 mt revealed during a conference call with institutional investors that its tax-exclusive full cost of lithium carbonate had fallen below 60,000 yuan/mt in Q1 2024. The cost of extracting lithium from salt lakes is even lower, making it one of the signals indicating the bottom of lithium carbonate prices.
A review of the annual reports of publicly listed lithium enterprises by reporters found that over the past year, amid the continuous decline in lithium carbonate prices, most lithium enterprises have fallen into losses. Benefiting from the cost advantages of lithium extraction from salt lakes, Salt Lake Industry remained profitable during the downward cycle of lithium product prices. Data shows that in 2024, Salt Lake Industry achieved a net profit attributable to shareholders of 4.663 billion yuan, ranking first in the lithium ore sector. In 2024, the gross profit margin of Salt Lake Industry's lithium carbonate products reached 50.68%, significantly higher than the industry average. Currently, the cost of lithium extraction from salt lakes ranges from 30,000 to 40,000 yuan/mt, offering a clear cost advantage over lithium extraction from ore. Salt Lake Industry plans to produce 43,000 mt of lithium carbonate in 2025.
A reporter contacted Salt Lake Industry and learned that this was the first time the company had issued an announcement regarding hedging, and it had not previously participated in futures trading.
"Salt Lake Industry's announcement to carry out hedging for lithium carbonate futures is a proactive measure to address the downward risk of lithium prices," Yu Shuo told the reporter. The company clearly stated in the announcement that the purpose of hedging was to "reduce the impact of lithium carbonate price fluctuations" and emphasized that it would "not engage in speculative arbitrage," which is a warning sign of the current decline in lithium carbonate prices.
Yang Fei, a senior researcher at the Non-Ferrous Metals and New Materials Group of CITIC Futures, believes that under the current background of supply-demand mismatch, the social inventory of lithium carbonate will continue to accumulate, and lithium carbonate futures have not yet deviated from the downward price trend.
"Even if lithium carbonate prices fall below the cost line, it does not mean that companies will halt production," Zhang Hua, the business head of a large domestic lithium metal production and supplier, told the reporter frankly. For companies like theirs, despite the sluggish performance of lithium carbonate prices, they will maintain a certain operating rate to sustain long-term contractual orders.
Yang Fei believes that although the current price of lithium carbonate is in a downward trend, its raw material costs are also gradually decreasing. Only when there are active production cuts, such as mines reducing output and companies controlling the pace of shipments, can we expect to see lithium carbonate prices stop falling and stabilize.
