In-depth Analysis: Supply, Cost and Future Trends in the Lithium Battery Market

July 24, 2023: The SMM battery-grade lithium carbonate index is quoted at 289,648 yuan/ton, a decrease of 2,223 yuan/ton from the previous working day. The price of battery-grade lithium carbonate is 277,000-294,000 yuan/ton, a decrease of 2,500 yuan/ton from the previous working day. The price of industrial-grade lithium carbonate is 264,000-276,000 yuan/ton, a decrease of 2,500 yuan/ton from the previous working day. In futures, Guangzhou Futures Exchange’s lithium carbonate 2406 and 2407 contracts fell limit down at 10:37, a decline of 16.99%. The lithium carbonate 2406 contract fell to 180,300 yuan/ton, and the lithium carbonate 2407 contract fell to 178,050 yuan/ton. By the midday close, the lithium carbonate 2401 contract fell by 3.85%, hitting a low of 209,000 yuan/ton.

Analysis of the Lithium Salt Spot Market

According to SMM, at the beginning of the week, many lithium salt factories maintain a wait-and-see attitude, and downstream procurement is still cautious.

The current price of lithium carbonate is still mainly falling.

Cost end: The price of lithium mica continues to fall. As the price of lithium carbonate continues to probe and touch the cost line, the demand for lithium mica in lithium salt factories has weakened. At the same time, some lithium salt factories choose to subcontract in order to stabilize profits, which continues to reduce the overall demand for mica. The price of lithium mica fell this week due to the impact of traders lowering their prices to sell. It is expected that the price of lithium mica will continue to weaken in the short term. The CIF price of lithium spodumene concentrate fell slightly this week. Due to the recent weak transaction volume of lithium carbonate and the accumulation of spodumene, the price of lithium spodumene fell in sync. It is currently expected that the subsequent price of lithium spodumene will be weak and stable.

Supply end: The supply of lithium carbonate maintains an increase, the sales enthusiasm of manufacturers is high, and the liquidity of lithium carbonate spot is strong.

Demand end: Downstream procurement intentions are still cautious, mainly for just-needed procurement, and there is no large-scale stockpiling. And due to the impact of power restrictions in Sichuan at the end of the month, the output of lithium iron phosphate cathode material may be reduced, reducing the short-term demand for lithium carbonate.

Inventory: According to SMM lithium carbonate sample weekly inventory data, as of July 20, the total inventory of the sample week was 71,693 tons, of which the inventory of the sample smelter was 38,533 tons, the inventory of the sample cathode material factory was 15,823 tons, and the sample other inventory was 17,337 tons. The smelter’s inventory continued to accumulate compared with July 13, but the inventory of the cathode material factory continued to decrease compared to July 13.

Sentiment: The overall bearish sentiment in the industry chain is serious. Because the listing of futures still has a certain uncertain impact on the spot market, all parties are mainly cautious in trading.

Market performance: It is expected that the spot price may continue to fall under the condition of normal supply and short-term weak demand.

The current lithium hydroxide market is still on a downward trend.

Supply end: At present, all parties maintain normal production, shipments are relatively active, and the liquidity of lithium hydroxide spot is strong.

Demand end: The demand for high-nickel ternary is not as expected, material factories maintain the trend of de-stocking raw materials, and spot procurement demand is weak.

Market performance: Because the spot market price continues to fall, downstream procurement is cautious, and the salt end has a clear trend of inventory accumulation, lithium hydroxide is slightly price-in-kind.

Analysis of the Lithium Carbonate Futures Market

On July 24, the Guangzhou Futures Exchange’s lithium carbonate 2406 and 2407 contracts fell to the limit, down 16.99%; the lithium carbonate 2406 contract fell to 180,300 yuan/ton, and the lithium carbonate 2407 contract fell to 178,050 yuan/ton. As of the midday close, the lithium carbonate 2401 contract fell by 3.85%, hitting a low of 209,000 yuan/ton.

Cost end: The cost of lithium carbonate is mainly affected by the degree of resource ownership and the type of raw materials. According to SMM data, in the first quarter of 2024, the weighted average cost of South American salt lakes was about 42,000 yuan/ton, the weighted average cost of Chinese salt lakes was about 47,000 yuan/ton, the weighted average cost of China’s own lithium spodumene resources was about 69,000 yuan/ton, and the weighted average cost of China’s own lithium mica resources was 78,000 yuan/ton. The weighted average cost of lithium extraction from China’s imported lithium mica, which is at the highest support of the cost curve, is about 165,000 yuan/ton, and imported lithium spodumene is about 184,000 yuan/ton, of which imported lithium spodumene production accounts for about 20% of the total global supply. Among them, the lithium carbonate production cost corresponding to the 90th percentile line is 174,300 yuan/ton, and the lithium carbonate production cost corresponding to the 80th percentile line is 142,600 yuan/ton.

Supply and Demand: It is expected that with the release of new projects and the increase in production capacity, the monthly output of lithium carbonate will increase, but downstream demand is in the off-season in the first quarter, so the overall supply and demand is mainly surplus.

Analysis of the Lithium Battery Terminal Market

The consumption demand for lithium can be divided into two major sectors, the lithium battery industry and the traditional industry. With the explosive growth of demand in domestic and foreign power and energy storage markets, the demand for lithium batteries has increased year by year in the total consumption of lithium. According to SMM statistics, from 2016 to 2022, the consumption of lithium carbonate in the lithium battery field increased from 78% to 93%, and lithium hydroxide jumped from less than 1% to nearly 95%+. Looking at the market, the total demand of the lithium battery industry is mainly driven by the power, energy storage, and consumer markets.

Power Market: Driven by global electrification policies, auto manufacturer transformations and market demand, the power market experienced explosive growth in demand in 2021-2022, occupying an absolute dominant position in the demand for lithium batteries and is expected to maintain steady growth in the long term.

Energy Storage Market: In the face of the energy crisis and national policies, China, Europe, and the United States are all exerting their strength and will become the second largest growth point of lithium battery demand.

Consumer Market: The overall market is saturated, and the long-term growth expectation is low.

Overall, the demand for lithium batteries increased by 52% year-on-year in 2022, and will steadily increase at a compound annual growth rate of 35% from 2022 to 2026, further increasing the proportion of lithium battery industry in lithium demand.

Looking at different applications, the energy storage market has the highest growth rate. The power market continues to exert its strength with the continuous development of global new energy vehicles. The consumer market mainly relies on the growth of electric two-wheelers, new consumer products such as drones, electronic cigarettes, wearable devices, etc., with a compound annual growth rate of only 8%.

Summary

Lithium Salt: The source of lithium mineral resources is gradually becoming enriched, but dependence on imports remains high. Lithium salt production capacity is mainly distributed domestically, but different raw materials and sources lead to huge cost differences. Direct transactions between upstream and downstream enterprises are the main mode, but the quantity of purchases involving battery cells and terminals is gradually increasing.

Cathode: The production capacity of ternary cathodes is gradually expanding globally, and it is expected that there will be sufficient capacity for new construction. Lithium iron phosphate cathodes are mainly domestic, with rapid capacity expansion. Cathode production is highly correlated with battery cell orders and production scheduling.

Battery Cell: Among types of power batteries, the proportion of ternary ones has declined due to high costs in 2022. However, it is expected that there will be room for increase once costs decrease in the future. The vast majority of energy storage battery cells use LFP cathodes.

Terminal: Due to the phasing out of subsidy policies and the impact of the macro environment in 2023, it is expected that the growth of new energy vehicles in China will decrease to less than 30%. The annual growth rate from 2022 to 2026 is 25%. The policy-driven market in China accelerated the increase in penetration rate before 2022, but due to the phasing out of subsidies from 2023 and macro-environmental factors, the speed of penetration rate increase has slowed down. Energy storage demand is still maintaining rapid growth under the support of policies and demand.