SMM Analysis: Upside Momentum of Lithium Carbonate Prices Gone? What Can be Expected in the Future?

SMM spot quotations of battery-grade lithium carbonate stood at 500,000-506,000 yuan/mt on March 25, flat from the previous day. However, according to futures data, on March 18, the prices of April and June lithium carbonate contract moved in a downward trend, with prices falling by nearly 5%, and the overall price trend was different from SMM quotations.

On the supply side, since January, manufacturers have successively started their annual maintenance at the end of last year or in January. The supply and demand gap once widened to 10,774 mt. In March, with the end of overhaul at the salt plants and the rise of temperatures in Qinghai, domestic supply of lithium salt picked up significantly, with growth rates of output expected at 26% in March and 7% in April. In addition, according to the pattern of previous import data, imports of lithium carbonate will be low due to the Christmas and Chinese New Year holidays. And then the imports will rebound in March and April and arrive at ports intensively. At that time the supply tightness of domestic lithium carbonate would be effectively alleviated. On the demand side, the downstream LFP factories were still negotiating with the downstream battery factories for the settlement time of long-term orders. Meanwhile, in light of black swan event of the nickel prices, ternary and LFP material factories were worried about the orders in April, followed by mere increase of the overall lithium carbonate demand with the growth rate of only 4%. The supply-demand gap will also reverse from a slight deficit of 1,939 mt in March to a tight supply-demand balance with a minimal surplus of 70 mt in April. In May, after the nickel prices subside and with reference to the terminal sales data in previous years, the terminal demand in May will still be in a slight upward trend and the supply-demand gap may reappear. Under the support of the fundamentals, the growth rate of lithium carbonate prices will slow down during March and April and the prices will stabilise as a whole.

Besides the fundamentals, the Industry and Information Technology (MIIT) announced that it would crack down on hoarding behaviours, coupled with the release of lithium carbonate products in Qinghai with direct sales, which have strongly influenced the trades. At the same time, some traders sold off their cargos considering that the prices have been flat for a long time. And after taking into account many factors, some traders sold off their cargos due to long-term market stalemate. According to the expectations of the fundamentals, prices of lithium carbonate may stabilise; but after considering factors like the market sentiment, prices of lithium carbonate still have the possibility of a small increase. The sharp fall in futures prices have caused panic across the market. But the overall transaction scale in the futures market was rather small, which is rather a reflection of market sentiment than the actual situation of the spot market. Readers should be cautious in reference. The judgement of the subsequent trend of spot prices should be made under the consideration of the fundamental changes and the game between the upstream and downstream.