Is the January 2024 lithium carbonate price rebound a fundamental reversal or a flash in the pan?



Is the January 2024 lithium carbonate price rebound a fundamental reversal or a flash in the pan?

According to SMM spot prices, after nearly three months of decline, battery grade lithium carbonate spot prices have recently rebounded, with a cumulative increase of 500 yuan/ton on January 12 and January 16, respectively. As of January 16th, the spot price of battery grade lithium carbonate has risen to 93000 to 100000 yuan/ton, with an average price of 96500 yuan/ton, an increase of 0.52% from the previous low point of 96000 yuan/ton.

As is well known, there have been frequent disturbances from the supply side in the lithium market recently. Whether it is the sudden announcement by Australian lithium miner Core Lithium on January 5th to suspend mining operations for its Finniss lithium project in response to the continuous decline in lithium prices, or the blockage of the Atacama Salt Flats channel, the world's largest lithium mine, all are stirring up the "fragile" nerves of the lithium market and repeatedly triggering intense market discussions.

Now, does the rebound in spot prices of lithium carbonate mean that the fundamentals of oversupply have quietly begun to change due to various disturbances in the raw material end?

SMM believes that in reality, the fundamentals of the current domestic lithium market have not changed much compared to before, and the previous local community road closures in Chile have had a weak impact on SQM production, making it difficult to have a long-term impact on production. The current price of lithium carbonate is only experiencing slight fluctuations, and the overall logic of the market is still oversupply. The main reasons for the sudden rebound in lithium carbonate prices are as follows:

In terms of lithium salt factories, some lithium salt enterprises may undergo seasonal maintenance before and after the Spring Festival, or there may be certain expectations of production shutdown; And currently, the inventory pressure of lithium salt enterprises in Jiangxi region is not very high; In addition, against the backdrop of the continuous decline in the spot price of lithium carbonate, lithium salt enterprises engaged in external lithium mining have been in a long-term loss making state. At present, there are more options to adopt the strategy of selling individual orders at a high price, and the discount for long orders is gradually increasing.

In terms of downstream enterprises: Due to the seasonal off-season of downstream demand in February, most positive electrode enterprises have an expectation of reducing orders, and their acceptance of high prices for individual orders is not strong. In the short term, it is still difficult to raise high prices without the support of improved demand; However, some positive electrode enterprises have a higher demand in February than in January, and some positive electrode enterprises have slightly increased their procurement with production arrangements, driving up the transaction price center of the lithium carbonate market slightly. However, it should be noted that downstream enterprises are still in a continuous destocking cycle, with limited acceptance of long order discounts, and there is currently no overall demand for sustained restocking.

As for the reasons mentioned earlier for some companies to meet their demand in February, SMM research shows that on the one hand, as the Spring Festival approaches, some manufacturers choose to purchase and produce some orders in February in advance to lower their fixed production costs and save labor costs during the holiday period; On the other hand, some manufacturers involved in exports have received some incremental orders, but due to the impact of the Red Sea incident and considering shipping issues, they have chosen to prepare their goods in advance. Therefore, there is a slight increase in the current demand for positive electrodes.

Overall, there has not been much change in the fundamentals of lithium carbonate, and this increase is mainly due to lithium salt factories raising prices, coupled with sporadic replenishment of downstream inventory, resulting in a low narrowing of the industry's average transaction range.

According to SMM research, considering that there will be enterprise maintenance in late January, the production of lithium carbonate in January may decline compared to the previous month. Specifically, according to SMM's previous research, some pyroxene lithium salt enterprises will start maintenance in late January, and the overall output will be slightly reduced; Due to the reduction of OEM orders starting from December and the continuous inversion of raw material costs, mica and lithium salt enterprises with relatively small production capacity will gradually enter a state of shutdown and maintenance around mid January. It is initially expected to continue until after the Spring Festival, combined with seasonal maintenance by some large factories near the Spring Festival, and it is expected to continue to reduce production in the future; Most salt lake enterprises maintain stable production, but the new production of a lithium salt enterprise in a salt lake in Xinjiang will bring a small increase; Due to the continuous shortage of waste supply and the overall inverted production profit of lithium salt recycling enterprises, it is expected to continue to decrease