【SMM Analysis】A conclusion to the week of madness in Chinese lithium market

As the latest article from UBS ignites the lithium market, there are plenty of oversea lithium investers and market participant curious to learn about what had happened to the Chinese market and CATL’s current production status of lithium carbonate. As the lithium analyst of SMM, it is my chance to share key information and my ideas with the readers of this article.

What happened with CATL’s production of lepidolite and lithium carbonate?

There have been multiple versions of the current status of CATL’s production. According to UBS, the mining action at the large JianXiaWo mine has stopped, while the ore dressing plant will shut down in 2 days. Most importantly, their lithium carbonate facilities, which currently produces around 6,000 tons monthly, will also be shutting down in 1 week. This brings excitement to the market since September is The month of the 2024 where demand number for lithium carbonate finally surpass supply according to SMM data. The extra loss of 6,000 tons of supply in September will definitely brings up market sentiment and price upward, where market participants expect the price could be reaching 84,000 RMB/ton (Approximately 11,800 USD).

With huge information surge on Wednesday China time, SMM has made numerous inquiries within the market, both with CATL production cites and with the CATL-related cathode material producers, we can finally draw a conclusion about the situation.

First, their mining sections is indeed about to be offline real quick in couple of days, and their Ore dressing plant will be turning 1 out their 2 production line off instead of fully closed up. However, there are still no clear indications for their lithium carbonate converters fully going off line in September. They themselves have not fully unified a central idea yet for their production cuts, and they might wait untill October to make forward decisions on the production status based on the market by then.CATL’s official reply to the Chinese media only indicates that they will be adjusting the production status based on the lithium market dynamics, and there is no further explaination.

And about the production halt on their lepidolite mining, there have been market news whiles back about their lepidolite inventory stacking up high. Potentially, the halt at the mining site can be their attempts to destock lepidolite ore inventory. Objectively speaking, this whole incident might not able to bring the amount of supply cuts as public expected.

What do you think about the reason behind their actions?

I personally do not think the production halt from the CATL’s lithium carbonate plant, if at last confirmed to be true, a total optimistic information for the last quarter of this year regarding lithium price.

As one of the largest lithium carbonate producer currently in China, CATL’s production status has become an important indicator for the lithium market. From the beginning of 2024, there have been monthly based market hearasays about them shutting down either mining or conversion plant, which never been testified to be true besides the lepidolite production halts in Febuary because of the New Year break. Market would likely to believe about their closing-off news since their production costs of lithium carbonate are at the marginal of the global lithium cost curve, and they are losing their cash under current lithium price.

However, it is clear that if any the production cuts was proved to be true from all of the previous market hearasays in 2024, the price of the lithium carbonate will see a huge rebound, just as what the market experienced on Wednesday. Theoretically the huge price surge of lithium carbonate is not something CATL would want to experience since most of their profit margins is coming from downstream battery production. In this case, their potential production adjustments in September could indicate 2 reasons. First is that CATL could have finished their restocking of lithium carbonate for Q4 and they have the sufficient amount to supply their upstream cathode material producers. Current, there is no clear indications that CATL have reduced the lithium carbonate supply amount to their cathode producers in September yet. After the huge price surge on Wednesday, SMM have not heard enthusiasm from the cathode producers to refill their inventory yet. Some of the middle to small scaled producers declared that they will be making around 7-10 days pre-holiday restocking. But for the major LFP cathode producers, they did not express the need to procure lithium ASAP, potentially because the the lithium contract volume and the lithium supply from battery makers like CATL and BYD are still sufficient. In general, the price surge of lithium didn’t bring that much of influence to the industry production as for now. Second reason for the potential production cuts from CATL is direct and pessimistic, which is the battery demand in the the 4^th quarter will be under expectation. This cenario is definitely not something that industry would want to experience once again, as the price of lithium carbonate could eventually falling to a further low price at the end of the year.

In conclusion, it still takes time to determine how much or when the supply cuts eventually will be. For now, the market looks much more active then it previously were. As market analyst, it's nice to see the market sentiment rising again after the long lasted price bottom, and I wish the “good old days" could last longer.