[SMM Analysis] Demand for Lithium Battery Materials in December Outperformed Previous Years, Marking a Perfect Conclusion to the Annual Lithium Battery Market

SMM January 3 News:

Lithium Carbonate

In December, China's total lithium carbonate production continued to rise rapidly, up 9% MoM and 59% YoY. Stimulated by strong downstream demand maintaining high production levels, coupled with certain arbitrage opportunities in the futures market, upstream lithium chemical plants showed sustained enthusiasm for production. By raw material type, lithium carbonate derived from spodumene increased 16% MoM in December, showing significant growth. The increase was partly driven by profits from the delivery market, leading to higher production at some lithium chemical plants, and partly by the ramp-up of hydrogen-to-carbon conversion and newly commissioned production lines. Lithium carbonate derived from lepidolite also continued to ramp up, increasing 12% MoM. The growth was supported by improving demand and additional output from newly resumed smelters. Lithium carbonate derived from salt lake decreased 14% MoM due to weather impacts. Meanwhile, lithium carbonate from recycling remained stable, up 1% MoM, as a major battery cell manufacturer maintained high levels of tolling orders for recycled batteries. Entering January 2025, the Chinese New Year is approaching. On one hand, some upstream lithium chemical plants plan maintenance around the holiday, which will reduce production. On the other hand, downstream demand has shown signs of weakening, affecting production sentiment at upstream lithium chemical plants. It is expected that China's total lithium carbonate production in January 2025 will decrease by 9% MoM.

Lithium Hydroxide

In December, China's lithium hydroxide production saw a significant MoM decline of approximately 22%, while increasing 15% YoY. Supply side, by raw material type, smelting output decreased by about 23% MoM, up 20% YoY. Over the past two months, the high proportion of long-term contracts in the market limited spot order demand for lithium hydroxide. Despite strong price support from lithium chemical plants, price increases were slow. Coupled with persistently high raw material prices due to firm quotes from mines, smelting losses showed no significant improvement, prompting some lithium chemical plants to reduce production to focus solely on long-term contract supply. Additionally, weak downstream demand led to reduced tolling orders at some major lithium chemical plants. Combined with maintenance activities since December, smelting output saw a notable MoM decline. Causticisation output remained flat MoM due to unchanged tolling orders and slower-than-expected ramp-up of new production lines. Demand side, ternary cathode material production decreased by about 7% MoM this month. The decline in 5-series production was offset by an increase in 8-series, which accounted for 40%, driven by end-use demand for installations, performing better than the same period in previous years. Export side, according to customs data, China's lithium hydroxide exports in November reached 5,494 mt, down 30% MoM and 64% YoY. Exports to South Korea and Japan were 3,609 mt and 1,615 mt, accounting for 66% and 29% of China's total exports, respectively, down 37.4% and 4.8% MoM, and 70% and 36% YoY, marking the lowest levels in three years. Overseas terminal sales underperformed expectations in recent months, coupled with inventory buildup, leading to a continued decline in export volumes. Overall, in December, supply-side declines significantly outpaced demand-side declines, resulting in notable destocking. Looking at January 2025 production schedules, most lithium chemical plants are expected to undergo maintenance, leading to weaker market supply. January production is expected to decrease by over 10% MoM and over 5% YoY, with destocking trends continuing throughout the month.

Cobalt Sulphate

In December, China's cobalt sulphate production increased by 9% MoM and 6% YoY. The production increase was mainly due to some producers recovering output after completing inventory reduction, despite some recycling enterprises halting production. Overall, the increase outweighed the decrease, resulting in MoM growth in cobalt sulphate production. In January 2025, due to the Chinese New Year holiday, cobalt sulphate production is expected to decline.

Co3O4

In December, China's Co3O4 production decreased MoM but showed slight YoY growth. The decline was primarily due to weak demand for LCO from downstream sectors, limiting Co3O4 procurement to essential needs and reducing market inquiries. Leading Co3O4 producers maintained high operating rates, though planned production decreased. In January, Co3O4 production is expected to decline further due to the Chinese New Year holiday and weak stocking demand from downstream LCO enterprises.

Ternary Cathode Precursor

In December, China's ternary cathode precursor production increased by 1% MoM and 13% YoY. Demand side, ternary cathode material manufacturers slightly adjusted production schedules. Supply side, top-tier enterprises generally increased production. Although year-end production typically surges, some top-tier enterprises faced weak material demand and inventory adjustments, limiting growth. Most non-top-tier ternary cathode precursor enterprises maintained stable or slightly increased production, while some saw declines due to structural shifts in orders. Looking ahead to January, ternary cathode precursor production in China is expected to decrease by 11% MoM, with YoY growth also likely to slow by 11%, due to the Chinese New Year holiday and reduced material production schedules.

Ternary Cathode Material

In December, China's ternary cathode material production decreased by 6.5% MoM but increased by 7.2% YoY, with cumulative YoY growth of 10.5% for the year. The overall operating rate was around 39%, down from October. Supply side, top-tier enterprises maintained high concentration, while production levels at small and medium-sized enterprises further declined. Additionally, downstream battery enterprises adjusted cathode material inventories at year-end, leading to fewer orders. By series, 5-series ternary cathode materials accounted for 22%, 6-series for 31%, and 8-series for 40%, with 8-series showing slight growth MoM and 5-series continuing to decline, reflecting a shift toward high-nickel materials. Market concentration for top-tier enterprises increased slightly, with CR3 at 45.9%, CR5 at 60.4%, and CR10 at 79.4%. Demand side, domestic ternary power battery cell production decreased by about 6% MoM in December, as battery manufacturers reduced production schedules due to inventory adjustments and weaker installation expectations. In January 2025, China's ternary cathode material production is expected to decrease by 4.5% MoM. Market concentration is expected to increase further, with most manufacturers showing slight production declines, except for a few enterprises ramping up production.

Iron Phosphate

In December, China's iron phosphate production decreased by 2% MoM but increased by 185% YoY. Supply side, iron phosphate enterprises maintained high operating rates to ensure sufficient raw material supply for downstream LFP production. Some enterprises saw significant production increases due to full order books. Raw material side, prices for phosphoric acid and industrial monoammonium phosphate remained high. Additionally, reduced titanium dioxide production led to lower ferrous sulphate supply, a key raw material for iron phosphate, driving ferrous sulphate prices higher in December. This, combined with changes in supply-demand dynamics, allowed iron phosphate enterprises to stand firm on quotes, leading to price increases in late December. As December marked both month-end and year-end, it was a critical period for negotiations. Long-term loss-making iron phosphate enterprises strongly pushed for price increases to mitigate losses. In January, most iron phosphate enterprises are expected to maintain full orders and normal production during the Chinese New Year holiday. However, some enterprises plan maintenance and production line upgrades before the holiday, which may impact January production. Iron phosphate production is expected to decrease by 6% MoM but increase by 183% YoY.

LFP

In December, China's LFP production decreased by 3.62% MoM but increased by approximately 190% YoY, with an overall operating rate of 61%. Supply side, LFP enterprises remained active in production, with most maintaining stable output except for slight reductions at year-end. Demand side, overall demand remained strong in January, particularly in the ESS sector, supported by overseas installation rushes. In the power sector, production and sales were robust at year-end, supported by low processing fees and stable downstream demand, resulting in minimal reductions. In January, demand is expected to shift. The ESS sector will be affected by the year-end grid connection deadline on December 31, while the power sector will face the end of the trade-in policy. These factors are expected to lead to a significant MoM decline in LFP production, estimated at 11.6%.

LCO

In December, LCO production decreased by 3% MoM. As year-end approached, terminal demand weakened, and battery cell manufacturers adopted purchasing as needed, slowing overall procurement. This impacted LCO material manufacturers, leading to slight declines in orders and production schedules. Market concentration remained high, with CR5 at 85%. Leading material manufacturers maintained high operating rates and sufficient orders. In January, due to the Chinese New Year holiday and the off-season at the beginning of the year, LCO production is expected to decrease further, down 4% MoM.

SMM New Energy Research Team

Cong Wang 021-51666838

Rui Ma 021-51595780

Ying Xu 021-51666707

Yanlin Lü 021-20707875

Disheng Feng 021-51666714

Yujun Liu 021-20707895