Lithium Carbonate Futures Collapse Below 70,000 yuan/mt, Reflecting Shift from Market Sentiment to Fundamentals, Medium-to-Long Term Outlook Remains Pessimistic

Last week, as market sentiment cooled, lithium carbonate futures prices pulled back, falling below 70,000 yuan/mt again. On August 1, the most-traded LC2509 lithium carbonate futures contract closed at 68,920 yuan/mt, down 5.85% WoW.

Industry insiders believe the current pullback in lithium carbonate futures prices reflects a shift in market sentiment and fundamental logic.

"Previously, lithium carbonate prices rose rapidly in a short period, mainly driven by expectations of production cuts and suspensions at the mine end amid the 'anti-rat race' backdrop. At that time, futures prices traded ahead of the supply contraction logic, briefly surpassing 80,000 yuan/mt," explained Meidan Wang, an analyst at CITIC Futures. As relevant policy details have yet to be finalized, the production suspension fell short of market expectations, sentiment-driven momentum began to fade, and prices gradually returned to the actual supply-demand fundamentals.

"From the perspective of the lithium carbonate market itself, the previous price increase was mainly due to the 'Jiangxi mining license' issue triggering expectations of supply contraction, but subsequent clarifications on related issues led to a cooling of market sentiment. After some time of speculation, the 'anti-rat race' expectations began to lose steam, and commodities related to the 'anti-rat race' are all in a phase of sentiment pullback," added Jiang Wu, an analyst at Guoxin Futures. The current lithium carbonate price correction is triggered by a simultaneous pullback in macro sentiment and fundamental expectations.

More importantly, as lithium carbonate prices continued to rise, the high-price range saw virtually no transactions. Data shows that as of August 1, the average spot price of battery-grade lithium carbonate was 71,400 yuan/mt, while industrial-grade lithium carbonate averaged 69,300 yuan/mt, up 16.39% and 16% MoM, respectively.

However, actual transactions remained limited after the price increase. "We still base our purchases on actual orders," a procurement head at a leading materials manufacturer told Futures Daily. The current supply-demand pattern has not improved, and the previous high prices lacked sustainability. The company's procurement and sales plans will not change due to short-term price fluctuations. "For the current price movements, we are mainly adopting a wait-and-see approach."

"We observed that after the price increase, some spot orders actually shrank," noted Meidan Wang. Weak spot transactions indicate limited downstream purchase willingness at high prices, leading the market into a rhythmic correction phase.

Notably, the lithium carbonate price rebound has significantly restored profits for upstream players. Last month, spodumene and lepidolite prices rose sharply, with some miners refusing to budge on prices. The CIF price for 6% spodumene is currently around $750/mt. Data shows that as of August 1, the average CIF price for 6% spodumene concentrates was $755/mt, up 20.8% MoM, while lepidolite (1.5%~2% grade) averaged 1,085 yuan/mt, up 50.69% MoM. Lepidolite with 2%~2.5% grade rose 36.25% MoM to 1,710 yuan/mt.

"The price increases for spodumene and lepidolite have noticeably slowed the ongoing capacity exit process," said Meidan Wang. As lithium chemical prices recovered, ore prices quickly followed from the bottom, restoring profitability for many smelters and mines with high marginal costs, and non-mainstream capacity gradually resumed operations. She believes that if lithium carbonate prices remain elevated, overseas supply may further expand, with small and medium-sized projects in Africa and Australia potentially re-entering the export market after the price recovery, and South American salt lake shipments likely to accelerate. Thus, the price rebound has temporarily interrupted the high-cost capacity exit process, slowing the overall pace to some extent.

Fundamentally, supply side, production declined last week but remained ample. Data shows that in the week ending July 31, weekly lithium carbonate production was 17,300 mt, down 1,362 mt WoW. July output was 81,530 mt, up 3,440 mt MoM and 26% YoY. Demand remained stable but lacked significant further upside. June lithium carbonate demand was 93,800 mt, down 145 mt MoM but up 39.7% YoY, while July demand is estimated at 95,776 mt.

Inventory-wise, destocking has begun across the industrial chain, with smelters seeing notable inventory reductions while downstream inventories continued to rise. Data shows that as of July 31, total weekly lithium carbonate sample inventories were 142,000 mt, including 52,000 mt at smelters, 46,000 mt downstream, and 44,000 mt in other segments.

On the current market's main contradictions, Jiang Wu highlighted two points: First, under dispersed supply and persistent oversupply, the 'anti-rat race' expectation temporarily reversed views on industrial chain prices, but price increases would stimulate competitive supply releases, capping further upside room of prices. Second, rapid ore price rebounds compressed smelter margins, likely dampening short-term production enthusiasm.

Looking ahead, Jiani Lin, an analyst at GF Futures, believes recent macro sentiment and news flows have dominated futures movements, with trading focus shifting to the mine end. With many news awaiting verification, lithium carbonate prices may fluctuate considerably.

Meidan Wang also noted that under significant supply-demand mismatch, the supply side remains highly sensitive to price changes. "While regulatory tightening trends are indeed emerging in Jiangxi and Qinghai, no unified or clear implementation plan has been formed yet, and smelter capacity utilization rate declines may be limited," she explained. Overall, the lithium carbonate market remains in a volatile phase dominated by structural imbalances and mixture of bullish and bearish factors, but medium-to-long-term price centers still face downward pressure. If future environmental policies fail to impose sustained constraints, coupled with accelerated overseas resource inflows, lithium carbonate prices may fall to cost support ranges again.

Please note that this news is sourced from https://mp.weixin.qq.com/s/OlzYbOVUGkcTrU90oJ9kpQ and translated by SMM.