The Future of Lithium Carbonate Pricing Amidst Successive Production Cuts by Lithium Salt Companies

On September 27, 2023, a maintenance announcement from Zhicun Lithium Industry Group, a titan in China's lithium salt Industry, sparked heated discussions in the market. The group stated in the announcement that it had decided to conduct maintenance on some of its base equipment from September 29 to October 25, 2023. It is anticipated that this maintenance will result in a reduction of approximately 3000 mt in the company's lithium carbonate production for October. As the price of lithium carbonate continues to fall, companies that source raw materials externally are facing losses. Consequently, many lithium salts companies are frequently having to conduct maintenance on their production lines, leading to consistent reductions in output.

From 2021 to 2022, the development of the new energy vehicle industry was in full swing. Coupled with the explosive growth in the energy storage industry, the price of battery-grade lithium carbonate skyrocketed 11 times during this period. It surged from approximately 50,000 yuan/mt at the beginning of 2021 to nearly 600,000 yuan/mt in November 2022.

Figure: Analysis and Trends of Prices for Battery-Grade Lithium Carbonate and Lithium Hydroxide in China.

Source: SMM

However, behind the sustained prosperity, a storm is brewing. Since 2023, with the noticeable slowdown in the growth of the NEV market and the incremental growth in the energy storage market not meeting previous market expectations, the demand for lithium carbonate in the lithium-ion industry chain has not been realized. This disappointment has intensified the psychological gap within the industry chain, leading to an increased pressure on lithium salt prices. Currently, many industry leaders have begun to spontaneously reduce production to support prices, and maintenance of production lines is becoming increasingly frequent.

Analysts have noted that as lithium carbonate price continues to reach rock bottom, many lithium salt producers have begun to reduce or halt production. This is expected to improve the supply of lithium carbonate in the future market, and the price is anticipated to fluctuate weakly in the short term. According to data from SMM, as of October 23, battery-grade lithium carbonate average price of had fallen to 170,000 yuan/mt. As the price of lithium carbonate continues to bottom out, many lithium salt producers are starting to cut or suspend production, which should improve the future supply of lithium carbonate and lead to weak price fluctuations in the short term.

Figure: Monthly Average Prices and Price Forecasts for Lithium Carbonate in China from August 2023 to August 2024.

Source: SMM

In a situation where both supply and demand are expected to be weak, it's difficult to significantly boost lithium carbonate price by stimulating the demand side alone. The factors determining the price are more heavily influenced by costs.

Figure: Forecast of Lithium Carbonate Supply-Demand Balance in China from August 2023 to August 2024.

Therefore, closely monitoring changes in the external environment and strengthening research and judgments on industry trends is particularly crucial for enterprises in all segments of the new energy battery industry chain to strategically plan and manage their operations.