The price of lithium carbonate is in a dilemma



The price of lithium carbonate is in a dilemma

Thunder, heavy rain, small dots, strong expectations are difficult to implement in the end

Unlike the "collapse" decline from 600000 yuan to 200000 yuan in the first quarter of 2023, the trend of lithium prices in the first quarter of 2024 follows a fundamental logic, showing a broad oscillation in the range of 90000-120000 yuan.

On the more active trading market of lithium carbonate futures, the main contract LC2407 experienced three rounds of ups and downs in the first quarter of this year:

In January, 2407 rose to 108000 yuan and encountered resistance before falling back, followed by narrow fluctuations in the range of 95000 yuan to 105000 yuan;

In February, 2407 fell first and then rose, rising all the way up to the 120000 yuan range;

In March, 2407 failed to find fundamental support after reaching a peak of 125000 yuan at the beginning of the month, so it struggled to fluctuate between 115000 and 120000 yuan, and finally fell back to the range of 105000 to 110000 yuan at the end of the month.

At the same time, the spot price of lithium carbonate (battery grade) remained stable at around 100000 yuan before the end of February. After the end of February, it was driven by the futures market and once peaked at 116000 yuan. Then, by the end of March, it fell back into the range of around 110000 yuan.

Due to the fact that lithium carbonate trading is mainly based on long-term contracts rather than spot contracts, the fluctuation of futures prices often provides more timely but not necessarily appropriate feedback on market changes.

Behind the dilemma of lithium carbonate prices is not only a continuous game between supply and demand in the industry chain, but also a trade-off between expectations and reality, industry funds and speculative funds, news and emotions, and so on.

In summary, in the latest cycle since the beginning of this year, the rise in futures prices is driven by optimistic expectations of demand growth and supply tightening in the short term; However, the weak upward momentum and subsequent decline are due to the market sentiment returning to calmness as the certainty of long-term oversupply on the smelting end becomes higher than the possibility of short-term demand explosion and positive landing.

From the results, it can be seen that both futures and spot prices in the first quarter are gradually breaking out of the low point of the 80000 to 90000 yuan range, and finally falling into the 100000 to 110000 yuan range.

This means that the optimistic expectations of demand growth in the current market have not disappeared, but have only resumed caution; At the same time, on the supply side, lithium mines and salt factories are fluctuating between raising prices and expanding production, while industry and speculative funds are seizing the gap and seeking profit space in futures trading.

Why did it soar to 120000 yuan?

In the first quarter, with the Spring Festival holiday as the boundary, the production and sales of lithium batteries showed obvious characteristics of off peak season.

Prior to the Spring Festival holiday, against the backdrop of the traditional off-season for new energy in January, the emissions from the middle and lower reaches decreased month on month; But some positive electrode factories started stocking up in advance before the holiday, and lithium prices were supported in the range of 95000 yuan to 105000 yuan.

On the supply side, while overseas Australian mining companies are gradually releasing their financial reports, they have also announced plans to expand production and reduce costs for the new year. The CIF price of spodumene concentrate continues to decline towards $1000 per ton, and domestic smelters using imported ore as raw materials are also able to expand their profit margins. The basic pattern of loose supply of lithium carbonate continues to strengthen.

After the Spring Festival holiday, as lithium battery companies resumed production, the news became increasingly complex.

On the supply side, three mines overseas have clearly lowered their annual production guidelines, while news of environmental inspections in Jiangxi or the suspension of smelters for rectification continues to ferment domestically. The Tianqi Lithium Zhangjiagang project, which is rare, has entered a two month major overhaul. It is not difficult to see that the above news cannot immediately affect lithium carbonate production, but there has been disturbance on the production side, driving lithium prices to rise at the end of February.

At the same time, during the Spring Festival, most of the self owned mines and smelters maintained production, and after the holiday, lithium carbonate inventories were transferred upstream, increasing the pressure on smelters to accumulate inventory; The price of ore around $1000 has left profit margins for the smelter, so the smelter did not choose to sell at a low price but to hold the order and raise the price.

Some traders have received price signals from smelters, and based on concerns about rising lithium prices, they have started purchasing lithium carbonate and converting it into futures warehouse receipts. The above has led to a tight spot circulation of lithium carbonate, but it is not a shortage of supply.

On the demand side, the significantly higher than expected lithium battery production in March was the key driver for lithium prices to once rise to 120000 yuan. The production data of battery factories and positive electrode factories is optimistic, with some battery factories returning to 70% -80% capacity utilization, which is seen as an important signal of the recovery of industry prosperity, significant improvement in demand, and the opening of replenishment.

It is not difficult to see that there was a time difference of supply and demand mismatch on the news surface before March, and on this basis, lithium prices were prone to rise but difficult to fall. In fact, the market was more optimistic about the expectations for the distant months, with strong expectations rather than weak reality dominating market sentiment and fund flows.

Why can't we continue to rise?

And as emotions begin to dissipate, the market's judgment of positive/negative news begins to return to rationality.

On the supply side, the reduction in production by three overseas mines will affect approximately 30000 tons of LCE, which is reflected in the supply-demand balance sheet. It is expected that there will still be around 10% surplus of lithium carbonate globally. However, in reality, with the production or upgrading of other mining projects, it is not difficult to make up for these 30000 tons.

In addition, the proportion of self owned mines is continuously increasing in the newly added production capacity of lithium carbonate, and the profits of self owned mine smelters are returning. Its production can offset the impact of production cuts and shutdowns by some small and medium-sized lithium salt enterprises.

On the demand side, behind optimistic production scheduling, it is difficult for midstream material factories to profit from the situation of upstream price increases and downstream price pressures, and they are in a dilemma.

The demand for cost reduction has been transmitted from terminal new energy vehicles to downstream battery factories, and the final quotation shows an increase in lithium prices, a continued slight decrease in battery cells, while material prices remain unchanged. In this context, the profit pressure faced by material factories only increases and does not decrease.

The rebound in lithium carbonate prices caused by supply tightening has not been effectively transmitted downstream. Many material factories have provided feedback in their research that downstream battery factories still demand discounts on material procurement, so they are unable to accept lithium prices ranging from 110000 to 115000 yuan/ton.

Therefore, material suppliers maintain a rhythm of "on-demand procurement" in actual procurement. Considering that battery and positive electrode factories still have 1-2 months of inventory as a buffer, and some replenishment has been carried out before the Spring Festival, large-scale replenishment has not yet occurred.

The price of lithium is no longer high, and the "customer supply" model of battery factories (which directly purchases lithium carbonate to provide to material factories and only pays processing fees to them) has decreased, and the participation of material factories in lithium salt transactions has increased.

In this context, material factories' refusal to pay for high priced lithium has become the main reason why lithium carbonate prices above 120000 yuan cannot find fundamental support.

It is worth noting that as more and more companies participate in lithium carbonate futures trading in the form of hedging, the regulatory role of lithium carbonate futures warehouses in spot circulation is becoming increasingly apparent, and the influence of industrial funds on the market is also starting to rival speculative funds.

At the end of March, with the centralized cancellation of a batch of warehouse receipts, the circulating resources in the spot market increased; The concentration of Chilean lithium ore at the port, coupled with the release of concentrated supply in the short term, has put pressure on the futures price to fall back to the 100000 yuan range.

Outlook for the second quarter of lithium carbonate

Looking ahead to the second quarter, there is a high degree of certainty in supply side growth: with the warming temperature, lithium mine production in April and May will rapidly rebound, especially with the continuous increase in salt lake output rate. The expectation of loose supply remains unchanged and stable. Attention should be paid to whether the smelter has started to actively reduce inventory or reduce prices for bulk cargo circulation.

On the demand side, the market mainly focuses on the complex signals brought by Xiaomi SU7 to the new energy vehicle market.

The optimistic expectation is that the popularity and hot sales of new models such as Xiaomi SU7, Wenjie, and Jike will directly drive the demand for supporting batteries and expand revenue scale, rather than staying at battery factories to digest existing inventory and handle inventory impairment. The market's expected delivery volume for Xiaomi cars this year is mostly concentrated at 60000 to 80000 vehicles. Based on the 100KWh battery pack carried by the SU7 Max, it is expected to drive approximately 6-8GWh of battery demand.

However, although the hot sales of Xiaomi SU7 directly drive the demand for batteries, its pricing is considered "extremely cost-effective" by the market, and has sparked the "second round" price war since 2024 this week.

Starting from April 1st, Wenjie M7, Xiaopeng, NIO and others have announced the latest price reductions and subsidy measures, with a maximum discount of 20000 yuan for car purchases. In addition to the price reduction of the original model, Jike Motors has also launched the 007 rear wheel drive enhanced version, lowering the starting price of the new car to the "high performance price" range of 209900 yuan.

This means a strengthening of the demand for cost reduction in the lithium battery industry chain, and there is still a possibility of cooling or falling lithium prices in the later stage.

It is also worth noting that after experiencing two consecutive months of declining sales, BYD achieved vehicle sales of over 302000 units in March, of which the Dynasty and Ocean series achieved sales of over 280000 units, a month on month increase of 151.4%. Such strong performance will further increase the overall penetration rate and market share of PHEV models.

As of February 2024, the sales performance of PHEV models in the price range of over 300000 yuan is better than that of pure electric vehicles, while the sales performance in the price range of below 300000 yuan is lower than that of pure electric vehicles. BYD's unexpected rebound in sales in March will further impact this segmentation pattern.

BYD's main choice for selling PHEV models is to produce and sell their own low battery and short endurance batteries, which is different from other brands such as Ideal, Great Wall, and Tengshi that attach importance to high battery and long endurance batteries.

In the short term, with the popularization of low battery and short endurance batteries and the improvement of market recognition, it may not be conducive to the landing of the demand for large capacity PHEV cells; At the same time, it will also have an impact on the existing pattern in the lithium iron phosphate sub market.

The game of the lithium battery industry may shift towards downstream dominance, which is also a return to a more reasonable price range for lithium prices.