Lithium Prices Will Remain High amid Robust Demand Against the Traditional Low

SHANGHAI, Mar 1 - Lithium prices are expected to sustain the current high level as the demand has been robust though it is traditional low.

1. January new energy vehicle (ENV) sales exceeded expectations, and the demand side has been animated during the traditional off-season: Domestic mainstream electric vehicle enterprise sales in January generally exceeded expectations. BYD, Guangqi Ean, XPeng realised the sales of 93,000, 16,000 and 13,000 units respectively in January, an increase of 362%, 118% and 115% year-on-year. As such, battery-grade lithium carbonate and lithium hydroxide prices were driven up by 7.7% to 392,000 yuan/mt and 9.4% to 326,500 yuan/mt respectively in the first week after the Chinese New Year holiday.

2. In the short term, the imbalance between supply and demand is difficult to be addressed. On the demand side, the newly commissioned downstream production capacity continues to ramp up the output. And due to the strong procurement demand, lithium salt price hikes are expected to be transmitted to the downstream smoothly, further heightening the prices or sustaining them at a high level. On the supply side, some large companies suspended the production for maintenance, and production cuts were normal during the Winter Olympics. Some smelters cut the production for lack of lithium ore supply.

3. In the medium and long term, lithium prices may be high for a long time, and the prosperity in the lithium industry may be beyond expectations. On the demand side, the new energy vehicle industry chain has entered the era of endogenous growth, and the demand side will serve as a solid growth engine for the industry.

On the supply side, the scarcity of newly discovered high-quality mines, and the current overseas reserves also revise down the output estimate. In addition, Chile, Mexico, Serbia and other countries become more conservative regarding the development of local lithium resource. Hence in the medium and long term, the expected lithium supply growth is unable to catch up with the growth of demand by 100,000-250,000 mt of LCE per year.

The industry supply and demand imbalance is expected to be long lasting. We are generally optimistic about the prospect of the "white oil" (lithium resources).