How was the price change of lithium carbonate market in the first half of the year?

From the supply side perspective, at the beginning of this year, due to the expectation of a significant oversupply on the supply side in 2024 and low lithium salt prices, both upstream and downstream maintained corresponding strategies of destocking and low production. Domestic lithium salt production enterprises were affected by the Spring Festival holiday and centralized maintenance in January and February this year, resulting in a bottoming out of lithium salt production. However, from the demand side, the production of downstream positive electrode materials rebounded significantly in January and February due to some battery manufacturers placing orders in advance to purchase positive electrode materials. The replenishment procurement of lithium carbonate began in mid to late January. Under the short-term supply-demand mismatch, the price of lithium carbonate stopped falling and rebounded at the end of January, and further increased its rebound after the terminal price war broke out in March. However, with the rapid recovery of lithium salt factory production in March and April, as well as the gradual reduction of material port orders caused by high inventory of positive electrode materials in the industry, the situation of oversupply of lithium salt demand has once again become significantly prominent. Due to the significant increase in the supply of lithium carbonate to corresponding positive electrode factories by top terminal battery companies since May, the demand for lithium salt procurement from positive electrode factories has rapidly declined, and the price of lithium carbonate has gradually fallen since May.

What is the trend of lithium prices in the second half of the year? Are there any expected signs of a rebound?

The continuous decline in lithium carbonate prices is closely related to the weak fundamentals of the spot market. The current lithium carbonate market still maintains a situation of oversupply. Against the backdrop of the continuous decline in lithium carbonate prices, upstream lithium salt factories are mainly driven by rising prices. However, due to market sentiment, there has been a downward adjustment in lithium carbonate prices, which has led to a sustained decline in spot lithium carbonate prices. According to SMM research, some non integrated lithium salt factories have plans to reduce production due to cost pressures and a bearish attitude towards future price trends. Taking the profit performance of lithium carbonate production in enterprises that purchase lithium mica ore and lithium pyroxene concentrate as an example, since mid to late June 2024, the production profit of lithium carbonate in these two types of enterprises has entered a loss stage.

Against the backdrop of cost inversion, some non integrated lithium salt factories at the end of lithium mica have chosen to reduce production since July due to the continuous decline in lithium carbonate prices, making it difficult to ship. However, the reduction in this part is still not significant enough for the current high monthly production volume. Most lithium salt companies that have already incurred losses have maintained a certain operating rate due to factors such as customer protection, production protection, worker wages protection, and expectations for the recovery of the gold, silver, and silver markets. Currently, there are still few companies that have completely shut down. And due to the abundant cash flow accumulated by most enterprises in 2022-2023, they will continue to maintain normal production until the industry clearance situation becomes clear, in order to reduce their own costs and avoid becoming one of the first companies to be eliminated. Even though individual companies have been observed to be undergoing maintenance and production shutdowns, once prices rebound, it is expected that these companies will resume production, making it difficult to effectively solve the problem of overcapacity in the short term.

From an optimistic perspective, the market demand has recovered rapidly this year due to China's energy storage capacity exceeding expectations and the easing of congestion in the US energy storage grid in recent months. The production of iron lithium cathodes increased significantly from August to September, and high production expectations were still maintained in September and October. Therefore, with the expectation of a short-term decline in lithium carbonate production but a rebound in demand, the excess supply and demand in September narrowed. And under the influence of downstream low inventory, downstream peak season reserve inventory will provide some impetus for price rebound; However, the high inventory level of lithium salt spot may constrain the upward trend of prices. At the same time, the outflow of futures reservoirs may have an impact on the circulation of spot goods, thereby affecting spot prices.

Against the backdrop of low lithium prices, how can lithium related companies reduce their own risks and smoothly navigate through the cycle?

The most straightforward aspect that everyone may mention but may not necessarily be able to improve in a timely manner is cost control. Mainly by improving production efficiency, adopting new technologies, optimizing supply chain management and other measures to reduce production costs. More detailed points such as improving lithium recovery rate and lithium extraction efficiency, especially in the field of lithium extraction from ores, currently there is room for improvement.

The second point is to cope with price fluctuations through reasonable inventory management and avoid excessive inventory losses caused by price drops.

The third point is actually mainly due to the frequent actions of mid to downstream enterprises, which is the integration of the industrial chain. Through vertical integration and connecting the upstream and downstream industrial chains, the raw material costs at the source can be reduced to improve the overall profitability. Nowadays, we can see many downstream positive electrode and battery companies laying out their overseas resources, including but not limited to the lithium pyroxene supply route in Africa and the South American salt lake route led by Argentina. Deepening the integration of enterprises can greatly reduce their own cost risks.

From last year to this year, it can be seen that some companies have also made mistakes in overseas investment risk management. For overseas project investments, companies need to strengthen their research on resource country policies and fully consider policy risks.
The last point is risk hedging. Many upstream and downstream enterprises have already utilized the futures market for hedging, locking in costs and prices through futures contracts.