SMM analysis: lithium carbonate futures contract prices hit new low. What's the current market supply-demand dynamics?

Lithium carbonate futures have been declining since Nov 15th. On Nov 21st, they dropped over 5% during trading, reaching an all-time low of 131,050 yuan/mt. By the day's close, the 2401 contract fell 4.55% to 132,300 yuan/mt, the 2402 contract was down 4.02%, contracts 2403, 2404, and 2405 dropped over 3%, contracts 2406, 2407, 2409, and 2410 fell over 2%, and contracts 2408 and 2411 decreased over 1%. As of Nov 21st, lithium carbonate futures have seen a five-day losing streak.

In the spot market, SMM reports that as of Nov 21st, the spot price for battery-grade lithium carbonate dropped to a range of 138,000 to 150,000 yuan/mt, averaging at 144,000 yuan/mt.

SMM's latest research indicates that most lithium salt companies in the spot market primarily focus on long-term sales, maintaining firm spot prices while gradually reducing sale prices. Trading companies, however, adjust their prices based on market fluctuations, though reported transaction volumes are relatively small.

From the consumer perspective, downstream cathode material companies are unenthusiastic about spot purchasing. As year-end approaches and lithium carbonate prices continue their downward trend, their wait-and-see attitude intensifies. Overall, the day's trading activity in the lithium carbonate spot market was lackluster.

However, considering the current supply-demand scenario in the lithium carbonate market:

On the supply side, SMM research shows that domestic lithium salt firms, which had decreased production or underwent maintenance, started resuming production since late October. Some new firms are ramping up production. With an 84.5% spike in lithium carbonate exports from Chile to China in October, totaling 16,791 mt, SMM expects a rise in domestic lithium carbonate supply in November compared to October.

On the demand side, SMM anticipates a slight drop in November demand from the power battery and consumer sectors compared to October, with energy storage demand staying weak. Cathode material companies, having largely secured year-end sales orders and facing potential cost risks due to falling lithium carbonate prices, largely rely on long-term contracts for procurement. While trading companies' selling prices decreased with futures prices, cathode material companies' purchase intentions remain low, leading to minimal market transaction volumes.

However, notably, due to ongoing losses, some lithium salt recycling companies have recently cut production. Seasonal factors are leading salt lake companies to reduce production. Some lithium salt firms, which mainly rely on large orders, report difficulty finding profitable margins, potentially dampening their future production enthusiasm. Thus, it's predicted that post-November, the domestic lithium carbonate supply may not see a significant increase.

SMM recommends closely monitoring the ongoing high ratio of positions for delivery and positions not for delivery of 2401 lithium carbonate futures contract. The uncertainty tied to the deliverable goods volume could potentially affect the industry's future price assessments.