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the continued decline in lithium prices has attracted market attention.

on september 6, the main contract of lithium carbonate futures fell below the integer mark of 70,000 yuan/ton during trading, once again setting a new historical low since its listing.

according to a reporter from securities china, lithium carbonate inventories remain high and the oversupply pattern remains unchanged, leading to insufficient market confidence. as lithium carbonate prices fall faster, the loss margin of battery-grade lithium carbonate production has widened.

many institutions told china securities journal that under the pressure of price decline, mine production cuts may gradually begin, and it is not appropriate to be overly pessimistic in the short term. however, lithium carbonate will still be in a surplus cycle in the next two to three years, and the process of clearing the industry's production capacity may be relatively long.

lithium prices fell below the 70,000 mark, hitting a new historical low

since may this year, lithium carbonate futures have experienced a round of continuous decline, falling from around 110,000 yuan/ton to 70,000 yuan/ton. in late august, the continuously falling lithium carbonate stabilized, but in september, it turned downward again.

on september 6, the main lithium carbonate futures contract 2411 fell below the 70,000 yuan mark during the session, reaching a low of 69,700 yuan/ton, setting a new low since its listing. in the late trading, the short positions took profits and the price of lithium carbonate returned to above 70,000 yuan/ton, but the overall situation remained weak, with a trading volume of 246,000 lots and a position of 239,000 lots.

gu fengda, chief nonferrous industry analyst at guosen futures, said that recently, the price of lithium carbonate has returned to a downward trend after a short-term surge. the reason for this is that the sharp decline in lithium carbonate this time is mainly due to the weakening of fundamental expectations and the sentiment of the commodity sector. the resonance of these two factors has caused lithium carbonate to hit a new low since its listing.

"from a fundamental perspective, although there has been some marginal improvement in the demand for lithium carbonate in recent times, the actual marginal improvement is very limited. there has been no large-scale reduction or suspension of production on the resource side. at the same time, the planned increase in production of new lithium salt projects is still relatively significant. oversupply is expected to remain the main theme in the medium and long term. this has once again become the main logic of trading on the market, causing a sharp drop in lithium carbonate futures prices." said gu fengda.

it is worth noting that after entering september, some lithium salt plants have improved their expectations for downstream demand, and their output has increased slightly. downstream material plants are preparing for the traditional peak season, and production schedules continue to rise. the fundamentals in september may show a pattern of both supply and demand growth, but inventory pressure is still high.

according to longzhong information research, the capacity utilization rate of china's major lithium carbonate production enterprises was 65.6% in july 2024, a decrease of 3.72 percentage points from the previous month. in july, the lithium carbonate market continued to weaken, and some production enterprises began to reduce production and overhaul under cost pressure, while integrated production enterprises had a high production willingness. combined with the increase in new production capacity and salt lakes, the supply decline was not obvious.

che guojun, chief researcher of the nonferrous metals sector at ping an futures, told china securities journal that the price of lithium carbonate has fallen sharply recently. the core contradiction is that the supply and demand of lithium carbonate has not changed. at present, some lithium salt factories still have expectations for downstream demand in september, and the output is stable and slightly increased. downstream material factories are preparing for the traditional peak season "golden september and silver october", and the production schedule is rising month-on-month. overall, with the increase in both supply and demand, lithium carbonate inventories continue to accumulate at a high level, and the market bulls generally lack confidence, causing the price of lithium carbonate to hit a new historical low again.

mine production reduction may gradually begin

as lithium carbonate prices fell rapidly, upstream mining companies were under increasing pressure, and some lithium salt production companies suffered serious cost inversion. among them, the loss margin of battery-grade lithium carbonate production has widened.

according to data from longzhong information, as of september 5, the price of battery-grade lithium carbonate was 73,500 yuan/ton, down 1.34% from the previous week. the current corporate profit is -6,242.6 yuan/ton, down 9.43% from the previous week.

in the first half of 2023, the average market price of domestic battery-grade lithium carbonate was 328,600 yuan/ton, but it fell to 103,700 yuan/ton in the first half of this year, a year-on-year decline of 68.4%.

che guojun believes that under the downward pressure of lithium carbonate, mines may gradually begin to reduce production, which can be supported by the month-on-month decline in lithium carbonate export data from australia and south america. due to the high cost of high-cost mica mines in jiangxi, the industry pain is relatively obvious. currently, mines are reducing production, potential reductions and suspensions, and new projects are delayed. at present, some large resource companies have taken the initiative to reduce production or control sales when prices are close to costs to avoid further squeezing market prices.

"in terms of smelting, current external lithium ore smelting companies are in the red, and subsequent mine production cuts may make it difficult for smelters to pass on the downward pressure on lithium prices to the cost side. the expansion of losses may bring about larger-scale and more extensive production cuts by smelters. the production costs of smelting companies will support short-term lithium salt prices." said che guojun.

gu fengda believes that from the perspective of cost, as the cost of the mines decreases, the profit margins of smelters are maintained, which enables them to maintain production rather than reduce production. the collapse of this cost support has also led to the relative weakening of the price of the long-term contract, which in turn affects the overall market price.

oversupply and demand are difficult to change

lithium carbonate was once a hot commodity and was in short supply at one point. however, with the substantial increase in production by major lithium mining companies and demand falling short of expectations, the industry has now fallen into a severe dilemma of oversupply and demand. companies in the industry chain are having a hard time and industry profits have shrunk significantly.

in the first half of the year, both lithium mining giants suffered losses. among them, ganfeng lithium lost 760 million yuan, the first interim loss since the company went public in 2010; revenue was 9.589 billion yuan, a year-on-year decline of 47.16%.

according to tianqi lithium’s latest semi-annual report, the company achieved operating income of 6.418 billion yuan in the first half of the year, a year-on-year decline of 74.14%; its net profit loss was 5.205 billion yuan, a year-on-year decline of 180.67%.

from its peak in september 2021 to the present, ganfeng lithium's share price has fallen by more than 80%, and has fallen 37% this year; tianqi lithium's market value has also fallen by 80% from its high, with a drop of more than 50% this year.

che guojun said that in the short term, the domestic salt lake production peak season has passed, the downstream production schedule in september is not pessimistic, the supply and demand of the lithium carbonate market has improved marginally, and there is an expectation of concentrated inventory replenishment during the national day holiday. the current lithium carbonate price has fallen to the 75th percentile of the cash cost curve, which has strong cost support. therefore, in the short term, we are not overly pessimistic about the price of lithium carbonate, and there may be room for a small rebound in the price of lithium carbonate in the future.

"in the long run, the global lithium supply and demand surplus pattern has not been reversed. lithium carbonate will still be in a surplus cycle in the next two to three years, and the process of clearing production capacity in the lithium carbonate industry chain may be relatively long. we believe that with the sharp decline in lithium carbonate prices, relying on the slowdown in capital expenditures, the reduction and increase in shutdowns of projects in production and the growth in demand to gradually resolve excess capacity, the price of lithium carbonate may then usher in a bottom-out reversal opportunity." said che guojun.

gu fengda also said that looking ahead to the future market, the fundamental pattern of oversupply of lithium carbonate has not been effectively improved, and the market has gradually returned to the expected excess trading. if the downstream fails to achieve unexpected inventory replenishment or other positive factors emerge, the further decline in lithium carbonate prices is still a high probability event.

in addition, considering that the total social inventory and warehouse receipts of lithium carbonate are currently at a high level, the marginal contradiction needs to accumulate more potential energy to form an effective phased supply and demand mismatch, so that the lithium price can rebound in phases. the lithium carbonate supply side is currently relatively elastic. once the price gives the smelter a relatively considerable processing profit, the lithium salt end operating rate may increase significantly again. it is expected that lithium carbonate will not bottom out and stop falling before there is a substantial reduction in production on the resource side.