Has the price of lithium carbonate bottomed out on July 25, 2024?

Has the price of lithium carbonate bottomed out on July 25, 2024?

After the short-term lithium price fell to a low level, the market's response to bearish sentiment became more passive, and the long short game became more intense. Before mid August, lithium carbonate is in a low demand season, while supply remains high. The centralized cancellation of warehouse receipts at the end of July will also bring some pressure to the spot market, and it is expected that lithium prices will fluctuate weakly. The future focus will be on the downstream production schedule in August and the progress of the Chilean earthquake. In mid to late August, downstream demand may gradually improve, and the peak season may have a driving effect on the price of lithium carbonate. At that time, there may be a rebound in lithium prices. However, against the backdrop of oversupply, it is expected that the rebound space will also be limited.

Since July, lithium carbonate has continued its volatile bottoming trend, with the main contract hitting a low of around 86450 yuan/ton. The direct reason for the decline is the low-priced release of salt lakes and the increased probability of Trump's election, while the deeper reason is the gradual realization of oversupply. On the supply side, domestic lithium carbonate production remains high, and lithium salt factories have decreased their willingness to reduce production due to an increase in their own mining proportion. On the demand side, it is currently in the off-season for lithium carbonate demand, and the proportion of customer supply from Changhe and Xiehe is relatively high. The positive electrode factory only maintains buying on dips. The centralized cancellation of warehouse receipts at the end of July will bring certain pressure to the spot market. Under the pattern of strong supply and weak demand, lithium carbonate oscillates and reaches its bottom. The core focus of the market has shifted to the downstream production schedule in August and the progress of the Chilean earthquake.

Year to date market review: alternating short-term supply-demand mismatch and medium - to long-term surplus

In the first half of this year, lithium carbonate fluctuated widely in the range of [9000012500], and the logic of the market is based on the alternation of short-term supply-demand mismatch and medium - to long-term surplus. The difference from last year's market is that last year's lithium price squeezed the foam from a high position, and the market gradually priced the excess supply. This year, long and short positions are playing around the short-term supply and demand situation after the price has fallen to a relatively low level.

Recently, the accumulation rate of social inventory of lithium carbonate has accelerated. As of July 18th, the total social inventory of lithium carbonate was 119600 tons, including 55200 tons in smelters, 35900 tons in downstream inventory, and 28600 tons in other links. Since late May, the accumulation rate has accelerated, with an average monthly inventory increase of over 3000 tons. Among them, inventory in all links has increased, with the most significant increase in inventory in other links, reaching 19700 tons compared to May 23. The reason for the rapid increase in inventory is oversupply.

Bottom line of price support: Strong cost support around 80000 yuan/ton

There are significant differences in the cost of producing lithium carbonate from different raw materials. The cost of salt lakes is between 30000 to 40000 yuan/ton, located at the far left end of the cost curve, and there is basically no active reduction in production. In 2023, salt lake production will account for 30% -40% of global lithium carbonate supply.

The next two years will be a big year for upstream lithium mines and salt lakes, and the pattern of excess supply of lithium carbonate is difficult to change. According to our calculations, the global surplus of lithium carbonate supply this year is around 14%, and the surplus will be even greater next year. From a long-term perspective, we are currently in a production increase cycle for lithium carbonate, and the launch and increase of new projects on the supply side will limit the height of the rebound in lithium carbonate prices.