Falling endlessly! The surplus pattern of lithium carbonate remains unchanged, and the futures price has hit a new low since its listing. When will it bottom out?

Recently, the continuous decline in lithium carbonate prices has attracted widespread market attention. 

The latest quotation from Shanghai Nonferrous Metals Network shows that on August 14th, 

the price of lithium carbonate (99.5% battery grade/domestically produced) was reported at 77400 yuan/ton, hitting a new low in over three years. 

Affected by the sharp drop in spot prices, the 2411 contract of lithium carbonate, the main force, fell to 72800 yuan/ton during trading on August 14th, 

and finally closed at 73450 yuan/ton, a decrease of 4.17% on the day. The futures price hit a new low since its listing.

It is reported that from early March to August 14th this year, 

the futures price of lithium carbonate has fallen from a high of 120000 yuan per ton to 73000 yuan per ton, 

with a range decline of 38.17%. Regarding this, Yu Shuo, an analyst at Chuangyuan Futures, stated that in the short term, 

the contradiction with lithium carbonate is that it is currently in a continuous decline, 

with supply side production cuts falling short of expectations and the trend of lithium carbonate accumulation remaining unchanged. 

Therefore, the pattern of lithium carbonate surplus will not change in the short term.

The accumulation pressure of lithium carbonate in the picture is high

The price of lithium carbonate has shown a downward trend this year, which is also in line with market expectations. 

At the end of February and the beginning of March, the seasonal supply-demand mismatch of lithium carbonate drove the market to quickly rise above 120000 yuan. 

From March to April, the supply and demand of lithium carbonate were both strong, and the price difference between futures and spot prices returned to fluctuation. 

After May, the market gradually returned to the logic of annual oversupply, and prices immediately showed a trend of decline, 

"Wei Chaoming, chief researcher of Fangzheng Zhongzhong Photovoltaic Building Materials, said in an interview with the Huaxia Times.

Wei Chaoming stated that in addition to the logic of fundamentals, the weak macro expectations also contribute to the current downward trend of the market.

However, compared to the panic style decline of other futures varieties, the downward absorption of lithium carbonate seems to have shown some strength. 

Even in the recent intensified long short game of lithium carbonate, the holdings of main contracts continue to increase. 

As of August 14th, the 2411 contract held 222000 contracts, with an increase of 60000 contracts. 

The daily trading volume remained between 100000 and 200000 contracts, and there was no significant increase in trading volume.

As the price of lithium carbonate falls, Yu Shuo stated that the overall operating rate of domestic lithium salt factories has begun to decline since July. 

In terms of classification, the operating rate of salt lakes remains at around 80%, the operating rate of lithium mica has decreased from 48% to 41%, 

and the operating rate of spodumene has decreased from 70% to 56%. 

However, based on weekly production data, the domestic lithium carbonate production at the end of June was around 15000 tons, which is the highest in recent times. 

Since July, it has started to decline, with a current weekly output of about 14000 tons. The reduction in production is relatively small, and the supply remains at a high level.

It is worth noting that with the continuous supply of production and weak downstream demand, 

the inventory of lithium carbonate is also continuing to accumulate. 

As of August 8th, the inventory of lithium carbonate was 131000 tons, 

with a monthly inventory of 79000 tons at the end of the first quarter and approximately 107000 tons at the end of the second quarter. 

The trend of accumulated inventory has continued for several months. 

Due to the decline in supply side operating rates since July, the accumulation of inventory is currently slowing down.

Companies involved in image hedging are not pessimistic

Since its listing, lithium carbonate has been continuously declining, and the market is seeking price support for lithium carbonate based on different costs. 

At first, after falling below the prices of lithium pyroxene and lithium mica minerals extracted from external sources, 

the market used high cost minerals around 90000 yuan of domestic mica as price support, accompanied by some bottom fishing behavior. 

However, under the sustained high supply and weak demand, the mismatch between supply and demand played a role, and the market price fell below 80000 yuan/ton. 

Therefore, the market began to believe that this downward trend must seek low mica cost support around 60000 to 70000 yuan.

Recently, the lithium carbonate market has been plummeting, and we have conducted on-site research in Jiangxi region. 

Through the past two days of research, we have divided enterprises in Jiangxi region into several categories. 

One category is enterprises that did not use futures tools in the early stage. 

Currently, most of these enterprises have stopped production, and the remaining few are engaged in contract manufacturing. 

The other category is enterprises that use futures tools for risk management, 

"said Manager Xu of a lithium carbonate trader in East China in an interview with Huaxia Times reporter.

However, Manager Xu stated that there are two types of enterprises that use futures tools for risk management. 

One type is those that used futures tools for simple hedging in the early stage, but closed all positions when lithium carbonate fell to around 90000/ton. 

After resisting the decline for a period of time, these enterprises conducted bottom fishing in the spot market. 

Currently, sales are stagnant and inventory accumulates, and can only rely on "waiting" to exchange time for space.

At the same time, there is another type of enterprise that not only uses futures tools for hedging, 

but also flexibly uses futures tools for 'pre-sale' operations, firmly locking in profits. 

The current sharp decline in prices has not affected the production and operation of such enterprises. 

Faced with the current difficulties, these different types of enterprises have vastly different views on the future, with a majority of pessimistic emotions. 

After all, only a few enterprises can firmly operate futures tools for hedging, 

but those who can flexibly use futures tools for hedging still have optimistic expectations for the September market, "said Manager Xu.

Wei Chaoming also stated that the profits of the lithium carbonate industry have weakened, 

and some foreign mining and lithium extraction enterprises have suffered losses. 

The operating rate of upstream lithium carbonate enterprises has also decreased; 

At the same time, due to the high futures market at the beginning of the year, which provided good opportunities for selling hedging, 

the profit situation of lithium salt companies participating in selling hedging was significantly better than the industry average, 

and the decline in lithium salt supply was slower than previously expected by the market.

The performance of upstream lithium salt factories in the picture has declined

As the price of lithium carbonate continues to decline, the cost curve of lithium carbonate has become steeper, 

and there is a significant gap in profits among different types of companies. 

Overall, companies that can achieve integration and have a high self-sufficiency rate of lithium resources have great advantages. 

Yu Shuo stated that the cost of producing lithium carbonate in salt lakes is relatively low, about 40000 yuan/ton, 

and both Salt Lake Corporation and Zangge Lithium Industry have profit margins. 

The production cost of lithium carbonate from ore is relatively high, and most of China's ore relies on imports. 

Therefore, companies that mainly purchase ore from external sources will experience losses in production.

Due to the significant decrease in lithium carbonate prices, it is expected that the performance of most lithium salt production enterprises will decline. 

According to the latest semi annual performance forecast, 

Ganfeng Lithium Industry is expected to have a net loss of 760 million yuan to 1.25 billion yuan in the first half of the year, 

with a profit of 5.85 billion yuan in the same period last year; 

Tianqi Lithium Industry is expected to have a net loss of 4.88 billion yuan to 5.53 billion yuan in the first half of the year, 

with a profit of 6.452 billion yuan in the same period last year, "said Yu Shuo.

In addition, from the perspective of terminal demand, the demand for positive electrode materials stabilized and rebounded slightly in August. 

Since the beginning of this year, the demand for lithium salts in electric vehicles has significantly exceeded market expectations. 

The latest data from the China Association of Automobile Manufacturers shows that from August 1st to 11th, 

the retail sales of new energy vehicles in the passenger car market reached 274000 units, 

an increase of 57% compared to the same period last August and 25% compared to the same period last month. 

Since the beginning of this year, the cumulative retail sales have reached 4.387 million units, an increase of 34% year-on-year.

From August 1st to 11th, Chinese passenger car manufacturers wholesale 221000 new energy vehicles, 

a year-on-year increase of 29% compared to the same period last August and 16% compared to the same period last month. 

Since the beginning of this year, a total of 4.841 million vehicles have been wholesale, a year-on-year increase of 30%. 

Wei Chaoming stated that during the downward trend of lithium salt prices, 

downstream positive electrode material and battery companies have taken measures to reduce inventory in the circulation process 

and hedge the risk of price fluctuations by selling inventory raw materials and finished and semi-finished products for hedging, achieving a certain degree of risk avoidance.

Yu Shuo also stated that during the downward cycle of lithium carbonate prices, 

the middle and lower reaches mainly focus on reducing finished product inventory and are not inclined to stockpile lithium carbonate inventory. 

The biggest impact of the decline in lithium carbonate prices is on upstream lithium salt factories, as it directly affects their production profits. 

For lithium salt factories, hedging at the appropriate location based on their own costs can effectively cope with the risk of price drops.

When will lithium carbonate bottom out in the picture

With the decline in lithium carbonate prices and the overcapacity situation, 

Yu Shuo stated that the current focus is on when the supply side will reduce production. 

Pay attention to the reduction of production in domestic smelters in the short term, 

and focus on the reduction of production in the mining sector in the medium and long term. 

Chile's lithium salt exports to China have been declining for three consecutive months, 

but the balance sheet is still surplus, and the surplus in August has narrowed. 

The current core contradiction is oversupply, and only by seeing a reduction in production can supply and demand return to a healthy level.

At the same time, Yu Shuo stated that from a fundamental perspective, 

continuous inventory accumulation has brought the domestic inventory level to 130000 tons, and there is no risk of shortage in the spot market. 

Even if there is short-term rigid demand during the "Golden September and Silver October" period,

 the existing excess inventory is sufficient to meet the growth of demand. 

Therefore, it is difficult for the "Golden September and Silver October" to bring about a significant price rebound, 

and based on the current trend, there is still a possibility of further price decline.

However, Wei Chaoming stated that in the case where demand is still supported, 

the excessive depletion of implicit inventory may hinder the weak operation of the market, and even form the basis for a new round of rebound. 

Therefore, the market performance should not be overly pessimistic. 

The current downstream replenishment behavior is suppressed by the continuous decline in the market, 

and there is a greater probability of concentrated demand release after the market stabilizes in stages.

The process of lithium carbonate bottoming out in the medium and long term is still ongoing. 

As the market deepens, it is advisable for short-term investors to take short positions and reduce their holdings at low prices. 

With a slight decrease in supply and a return to stable demand, the actual demand side should combine the situation of futures 

and spot prices to stock up at low prices or buy hedging on the market. 

For lithium salt production enterprises, it is recommended to pay attention to opportunities to sell at high prices above 90000 yuan, "said Wei Chaoming.