Lithium Market Analysis 2024: Supply Dynamics, Price Trends and Industry Outlook

Lithium Market Analysis 2024: Supply Dynamics, Price Trends and Industry Outlook

This report examines the current state and near-term outlook for the lithium market in 2024, with a focus on supply capacity, price trends, and industry responses.The report analyzes the impact of recent price declines on production plans, highlights upcoming capacity increases, and discusses factors that affect market balance.The report also explores the supply chain feedback mechanism from mining operations to lithium salt production, and considers the impact on market participants and potential price stabilization.

outline

The production capacity to be put into operation in 2024 includes 110,000 tons of lithium carbonate, 35,000 tons of lithium hydroxide, 30,000 tons of comprehensive lithium salts and 780,000 tons of lithium concentrate.

After the continuous decline in the price of lithium carbonate, the supply side has shown feedback.

The short-term lithium price may be close to the "bottom", but this is not the benchmark for clearing capacity.

It takes time to release production capacity;The short-term contradiction lies in the expectation of downstream demand and inventory turning point.

Since May 2024, the price of lithium carbonate has experienced four rounds of slight decline, from the high point of 120,000 yuan during the year to about 70,000 yuan.During this period, the maintenance announcement of a manufacturer in Jiangxi on June 25 and the Chile earthquake on July 19 brought short-term gains, but the overall strong supply level quickly eliminated these small positive factors.By mid-August, the price of lithium carbonate had fallen to a historical low, and the main contract 11 hit 71,700 yuan before rebounding.

In 2024, China's lithium carbonate smelting capacity will be 1.19 million tons, and the main process routes include extracting lithium from spodumene, lepidolite and salt lakes.The specific capacity structure is as follows.

The decline in the price of lithium carbonate does not seem to have dampened the enthusiasm for project construction.In 2024, there are still many new projects waiting to be put into production in China, as shown in the table below.

Overall, the production capacity to be put into operation in 2024 includes: 110,000 tons of lithium carbonate, 35,000 tons of lithium hydroxide, 30,000 tons of comprehensive lithium salts and 780,000 tons of lithium concentrate.

Although the deployment of production capacity continues, changes are also taking place quietly.The increase in lithium mine projects and lithium mine feeding projects has slowed down, and most of the projects planned to be put into production this year are salt lake projects.This is the feedback from the supply side after the continuous decline in the price of lithium carbonate.In addition, we can also observe:

The long-term profit of lithium extraction is upside down.According to the data of Fubao, the operating rate of lithium salt plants in August was 49%, down about 4 percentage points from the previous month, and the phenomenon of production reduction and suspension of outsourcing mining enterprises was particularly evident.

The listed company adjusted the annual production guidance.In August, a leader of Zijin Mining said at a performance briefing that under the current price level of lithium carbonate, it was difficult for the company to complete the lithium carbonate equivalent production guidance set at the beginning of 2024.They also said that although the company still has profitability at current price levels, it is facing considerable pressure, and the production time of the Largoc Salt Lake project will depend on price conditions.

At the upstream mining end, after the price of lithium ore fell, Caitlin expressed reluctance to sell.Caitlin and Fennis may suspend production in the second half of 2024;The mining resource company adjusted its production guidance, with the total production and sales targets of the three mines in fiscal year 2025 declining by about 5%, mainly due to a 27% decline in the production target of the Marion mine, which is a joint venture with Ganfeng.The main reason is that the expected FOB cost of Marion Mine in fiscal year 2025 will reach 870-970 Australian dollars per ton. If the lithium price continues to be low, it may affect operations.

It should also be noted that although the short-term lithium price may be close to the "bottom", this is not the baseline for capacity clearing.The short-term rebound is mainly driven by the expected demand in the peak season in September and the inventory turning point brought by the reduction of production in the smelting industry.However, if the integrated enterprise considers cash flow and long-term industry share and maintains normal production, considering its strong financial strength and low production costs in salt lake, it means that about 36% of the production capacity is operating normally at current price levels, equivalent to a monthly output of about 35,000 tons, accounting for 60% of the current total domestic lithium carbonate production (calculated based on the domestic lithium carbonate production of 59,500 tons in July).

From January to July 2024, the production of lithium carbonate was 346,800 tons.Even if all other production capacity (non-self-sufficient enterprises) is cleared, from an annual perspective, the high supply of lithium carbonate (domestic production + imports) will still not provide opportunities for balance sheet contraction.

On August 31, Tianqi Lithium released its semi-annual report, showing a significant turnaround in performance.In the performance report of July, the explanation given was that "due to the time cycle mismatch between the pricing mechanism of the company's holding subsidiary Talison chemical grade lithium concentrate and the pricing mechanism of the company's lithium chemical product sales, the company's performance in the first half of the year showed a periodical loss." It also said that "with the gradual warehousing of Talison's newly purchased low-cost lithium concentrate, the original lithium concentrate inventory was gradually digested, and the chemical grade lithium concentrate delivery cost of each production base of the company gradually approached the latest purchasing price. The periodical mismatch of the lithium concentrate pricing mechanism was gradually weakened, and the company's loss in the second quarter decreased compared to the previous quarter."

In short, part of the losses in the first half of the year came from high-priced lithium ore inventories in the early stage.After the change of pricing mechanism at the mining end, the weighted cost of lithium ore decreased and profits improved.This is actually a normal idea for companies with a high proportion of their own mines, which compresses the cost of raw materials to expand profit margins, which in turn puts pressure on the upstream mining end

The reduction in production brought by the price level of 70,000-80,000 yuan is limited. If the lithium price rebounds in the short term, upstream hedging or high-price pre-sale of goods rights will delay the efficiency of clearing production capacity.Of course, we should not be too pessimistic about the projects that will be put into production.Putting into production does not mean full production;It takes time to release production capacity.The short-term contradiction lies in the expectation of downstream demand and inventory turning point.Market information is complex, and stories about supply and demand are frequent, which need to be carefully distinguished.

conclusion

The lithium market in 2024 is characterized by a complex dynamic between supply expansion and price pressure.Although it is expected that a large amount of new capacity will be put into production, including 110,000 tons of lithium carbonate and 780,000 tons of lithium concentrate, the industry is showing adaptability to low prices.The production cuts, project delays, and revised production guidelines of major players indicate that the supply side is responding.

However, the market has not yet reached a clear bottom or triggered widespread capacity clearing.The resilience and low-cost operations of integrated producers, especially in salt lake projects, indicate that a significant portion of production capacity can continue to operate at current price levels.The persistence of this supply, coupled with potential short-term price rebounds and strategic actions such as hedging, may prolong the process of market rebalancing.

The key factors to be concerned about in the near future are the downstream demand trend and inventory dynamics.While the industry is adjusting to the new price reality, the speed of capacity release and the evolution of demand will be the key to determining the market direction.Stakeholders should be vigilant about developments in the supply side and demand indicators, as the interplay between these factors will shape the path towards market equilibrium.

As the industry navigates through this challenging period, a careful analysis of company-specific strategies, technological advancements, and global demand patterns is crucial to understanding the trajectory of the lithium market in the coming months and beyond.