SMM analysis on China June lithium hydroxide output and July forecast

In June 2024, China's lithium hydroxide production reached 35,220 mt, down 3% MoM and up 36% YoY. By raw material type, the production of lithium hydroxide by smelting process in June was 35,200 mt, down 1% MoM and up 53% YoY. The production of lithium hydroxide by causticizing method was 3,300 mt, down 17% MoM and down 34% YoY.

The production by causticizing method declined for the second consecutive month and the decline deepened. Lithium carbonate prices have fallen rapidly recently, while the decline in lithium hydroxide prices has slowed down after reaching around the 80,000 yuan/mt mark, narrowing the price spread between the two. However, for most causticizing method lithium salt plants, the cash profit of producing lithium hydroxide remains negative, ranging from negative 7,000 yuan/mt to negative 9,000 yuan/mt, making it economically unviable. Additionally, since June, the proportion of customer-supplied lithium hydroxide at ternary cathode material producers has increased significantly, inhibiting long-term contract and spot order demand from cathode materials producers. Consequently, there was a significant reduction in orders at some causticizing method companies, ultimately dragging down their production.

Demand side, although some large ternary cathode material companies have seen better-than-expected scheduled production due to a demand rebound, this is mainly because the inventory of cathode in the industry, as well as the inventory of cathode and finished battery cells at battery cell makers have returned to relatively normal levels after months of destocking. Together with the continuous decline in scheduled production by most ternary cathode material companies since April, reaching the 50,000 mt mark in June, the low base effect is evident. In June, the proportion of customer-supplied lithium hydroxide at ternary cathode materials producers surged, leading to an excess of lithium hydroxide at most cathode material companies. Some had to slow down pick-up of long-term contracts, stop spot purchases, and even sell their lithium hydroxide inventory externally. Short-term demand for lithium hydroxide is expected to remain low. SMM expects lithium hydroxide production in July to reach 33,170 mt, down 6% MoM and up 36% YoY.