The price of lithium carbonate has fallen to RMB80,000/ton. Has it reached the bottom?

The price of lithium carbonate continues to hit new lows. On July 30, the main contract of lithium carbonate futures fell by more than 4%, closing at RMB81,150/ton, and the lowest intraday price reached RMB80,700/ton, setting a new low since its listing in July 2023. In terms of spot, on July 30, the spot price of SMM battery-grade lithium carbonate fell to RMB80,400-84,400/ton, with an average price of RMB82,400/ton, a new low in the past three years.

Since the high point of RMB600,000/ton fell, the price of lithium carbonate has now shrunk by more than 85%. In the first quarter of this year, the price of lithium carbonate once counterattacked upward, from about RMB97,000/ton at the beginning of the year, the highest increase reached RMB125,000/ton. However, since May, the price of lithium carbonate has entered a volatile decline mode again, and the decline has been as high as 30% in the past three months.

At present, the price of lithium carbonate has fallen below the cost line of many lithium salt companies. According to industry insiders, the cost of lithium raw materials for Yichun mica-extracted lithium companies, such as Jiangte Motor, is about RMB80,000-100,000/ton, while the cost line of some lithium mining companies that rely on external raw materials is about RMB90,000/ton. The continuous decline in lithium prices has caused many lithium salt manufacturers to suffer a sharp decline in performance in the first half of this year, or even losses.

For example, Tianqi Lithium expects a net profit loss of 4.88 billion to RMB5.53 billion; Ganfeng Lithium expects a net profit loss of 760 million to 1.25 billion yuan; Jiangte Motor expects a net profit loss of RMB55 million to 70 million; Rongjie shares expects a year-on-year decrease in net profit of 38.79%-49.71%; Yahua Group expects a year-on-year decrease in net profit of 87.38%-91.58%; Keda Manufacturing expects a year-on-year decrease in net profit of 48.74%-64.51%; Salt Lake shares expect a year-on-year decrease in net profit of 54.88%-66.65%; Yongxing Materials expects a year-on-year decrease in net profit of 56.93%-62.7%.

The current lithium carbonate market is showing a downward trend, and market sentiment is pessimistic. Industry analysts believe that although lithium prices have fallen to a relatively low level, from a fundamental point of view, lithium carbonate may continue to decline, and it is not uncommon for it to be below RMB80,000/ton. In the bear market period of lithium industry prices, lithium salt giants represented by Ganfeng Lithium and Tianqi Lithium have gone against the trend to "bottom-fish" and stock up on lithium ore in anticipation of a new round of bull market.

1. Global lithium supply accelerates

The supply and demand pattern of the lithium carbonate market is still the most critical factor affecting price trends. From the supply side, both domestic and overseas lithium mines and lithium salt production capacity are accelerating. According to industry estimates, the global lithium resource supply in 2024 will be about 1.33 million tons, the lithium carbonate demand will be about 1.16 million tons, and the overall oversupply will be about 170,000 tons.

Industry data show that my country's cumulative lithium salt production in the first half of this year increased by about 30% year-on-year. In the first half of the year, my country's cumulative production of lithium carbonate was 296,000 tons, the cumulative production of lithium hydroxide was 201,000 tons, the cumulative production of lithium chloride was 8,234 tons, and the cumulative production of lithium metal was 1,544 tons. In the first half of the year, my country's lithium salt production was equivalent to 489,000 tons of lithium carbonate equivalent (LCE), an increase of 34.3% year-on-year. According to SMM data, the monthly production of lithium carbonate in July is expected to be 66,705 tons, a year-on-year increase of 47.2%.

In fact, although the price of lithium has fallen, domestic manufacturers have not stopped expanding production. For example, the Zabuye Salt Lake under Tibet Mining started trial production in June this year, with an annual design of 9,600 tons of battery-grade lithium carbonate. Shengxin Lithium Energy has currently built an annual production capacity of 72,000 tons of lithium salt, and the company is also planning an annual production of 10,000 tons of salt lake lithium extraction project in Suining. In addition, Qinghai CITIC Guoan Lithium Industry's annual production of 15,000 tons of battery-grade lithium carbonate project and Salt Lake Co., Ltd.'s annual production of 40,000 tons of basic lithium salt project will also be put into production this year and next year.

Not only that, lithium salt imports have also increased significantly. According to CITIC Futures data, in the first half of this year, imports of lithium ore and lithium carbonate from overseas increased by 46% and 45% year-on-year respectively. "Domestic lithium carbonate imports continue to rise, and the oversupply of lithium carbonate has further intensified, causing the recent lithium carbonate prices to fall all the way to a new low." Industry insiders pointed out that the supply of global mines and salt lakes has further intensified the competition in the industry market. According to data from the National Bureau of Statistics and Censuses of Argentina, from January to April this year, Argentina, as the world's fourth largest lithium producer, increased its lithium production by 49.7% year-on-year. According to reports, Argentina also has several lithium mining projects that will be put into production this year, including Centenario Ratones, jointly participated by China Tsingshan Holdings and French miner Eramet, Tres Quebradas participated by Zijin Mining, and Mariana participated by Ganfeng Lithium. After the above projects are put into production, Argentina's annual lithium production capacity will increase significantly by 79% to 202,000 tons/year of lithium carbonate equivalent. Australia, the world's largest lithium producer, is also increasing its production. Pilbara, the country's largest independent lithium producer, said that its lithium ingot production capacity in Pirgango, Western Australia will double. The company's pre-feasibility study determined that Pilgrim's annual production could increase to more than 2 million tons, and the average annual production in the first ten years after the expansion is expected to be about 1.9 million tons.

At a time when lithium prices are low, it is a good time for lithium salt manufacturers who are optimistic about the long-term development of the new energy industry to stock up. Australia's high-quality lithium mines are extremely popular. In February this year, Shengxin Lithium Energy signed a lithium concentrate purchase agreement with Pilbara, and will purchase spodumene concentrate from the latter from 2024 to 2026, with annual planned purchases of 85,000 tons, 150,000 tons, and 150,000 tons, respectively, totaling 385,000 tons.

Ganfeng Lithium also signed a lithium concentrate purchase agreement with Pilbara. In 2024, Pilbara will supply Ganfeng Lithium with an additional 150,000 tons of lithium concentrate on the basis of the original 160,000 tons/year, bringing the total supply in 2024 to 310,000 tons. In 2025-2026, Pilbara will supply an additional 100,000-150,000 tons of lithium concentrate on the original basis, bringing the total supply in 2025-2026 to 260,000-310,000 tons.

From the demand side, although the demand for downstream new energy vehicles and power batteries continues to grow, the growth rate has slowed down. According to data from the International Energy Agency, global electric vehicle sales are expected to reach 17 million this year, an increase of more than 20% from 2023. The average annual growth rate of global electric vehicle sales from 2019 to 2023 is as high as 60%. According to SNE report data, the total installed capacity of global power batteries from January to May this year was about 285.4GWh, a year-on-year increase of 23.0%, far lower than the 38.6% increase in 2023.

"The overall supply of lithium is still greater than the demand. This year's new energy vehicle models are mainly plug-in hybrids, which have a relatively small impact on lithium. The month-on-month increase in European and American countries in the first five months was only 3 percentage points, and there was no explosion in demand." An energy metal analyst from a domestic institution pointed out.

2. Lithium prices may further decline

Overall, the current lithium carbonate market is unbalanced in supply and demand, upstream lithium salt plants are in a wait-and-see mood, while downstream buyers are weak in purchasing intentions, and market pessimism continues to permeate. COFCO Futures said that there is currently no sign of lithium carbonate stopping its decline and stabilizing, and market participants' price expectations are also being lowered step by step.

"A substantial contraction in supply requires a reduction in production at the mine end, but the current lithium carbonate price has not yet forced the mine end to clear its production capacity." Industry insiders pointed out that the lithium carbonate market price usually uses the average cost of domestic Yichun mica mines and African mines as the first cost support line, which is about RMB83,000/ton; but it has not yet reached the general cost line of Australian lithium mines, and Australian mines are still expanding production.

Jianxin Futures pointed out that although many lithium salt plants are facing performance losses, the trend of production reduction is not obvious, and high supply pressure continues to exist. Lithium carbonate prices are expected to continue to fluctuate in the short term, and market competition is still ongoing.

"The price of lithium carbonate may continue to bottom out, and the industry's capacity destocking is also relatively slow." Ping An Futures believes that the price of lithium carbonate will most likely fall below the RMB80,000/ton. Taking into account the impact of cost support, the bottom is temporarily expected to be around RMB75,000/ton.