Trend and Impact of Lithium Carbonate Prices in 2024

Trend and Impact of Lithium Carbonate Prices in 2024

abstract

Since the beginning of 2024, the price of lithium carbonate has continued to decline after multiple rounds of price reductions, failing to achieve the expected stability in the market. Although the market generally believes that the price adjustment in 2023 has exhausted the industry from price fluctuations, and it is expected that the price of lithium carbonate will stabilize at around 100000 yuan per ton in 2024, the fact is contrary to expectations, with prices falling all the way below 80000 yuan and approaching 70000 yuan per ton. The continuous decline in lithium carbonate prices reflects the continuation of bearish sentiment in the industry, mainly due to the continued increase in lithium salt supply and the improvement of industry transparency. This price decline not only affects the restructuring of upstream production capacity, but also leads to changes in the cost structure of battery cells. This article aims to analyze the reasons for the decline in lithium carbonate prices and their widespread impact on the lithium battery industry.

1. Preface

The price trend of lithium carbonate market in 2024 shows a continuous downward trend, which is in sharp contrast to market expectations. At the beginning of the year, analysts generally predicted that the price of lithium carbonate would stabilize at around 100000 yuan per ton, but the actual situation showed that the price continued to decline, even falling below the psychological threshold of 80000 yuan per ton in early August. Behind this price trend, it reflects the weakening of market support for lithium carbonate prices and the pessimistic expectations of the industry for future price trends. Although the decline in 2024 has slowed down compared to 2023, the market's sensitivity to price fluctuations still exists. In addition, the slight difference between the futures price and spot price of lithium carbonate also reveals the difference in market participants' expectations for spot and future price trends. Under the combined effects of supply and demand, overcapacity, and the global economic environment, the trend of lithium carbonate prices has become the focus of investors' attention. Analysts' predictions on lithium carbonate prices and interpretations of market trends not only have a significant impact on investment decisions, but also provide guidance for the stable operation of the entire new energy industry chain.

2. Excess supply of lithium salts?

The phenomenon of oversupply in the lithium salt market is caused by various factors, including rapid expansion of production capacity, fluctuations in downstream demand, and asynchronous production cycles. According to the latest market analysis, the total global supply of lithium resources is expected to be 1.33 million tons in 2024, while the total demand is expected to be 1.15 million tons, resulting in a global lithium resource supply surplus of 180000 tons. In the domestic market, there is also a significant oversupply of lithium carbonate, with an expected annual output of 650000 tons, a year-on-year increase of 41%. In the second half of the year, there may be more incremental releases from the supply side, further exacerbating the situation of oversupply.

The oversupply has exerted significant downward pressure on lithium salt prices. In 2023, the price of lithium carbonate experienced a significant decline, with an overall drop of 81% in spot prices. This price fluctuation has had a significant impact on the profit distribution of various links in the lithium battery industry chain, especially for upstream lithium salt enterprises, whose profits have decreased significantly. Analysts believe that although the actual surplus of lithium carbonate is not high at present, the industry chain's perception of excess is very obvious due to the active destocking of the supply chain. The contradiction of oversupply at the end of last year has become increasingly prominent, and it is expected that 2024 will be a year of massive overcapacity and capacity clearance.

In this market environment, lithium mining enterprises are facing the risk of overcapacity clearance. During a downward price cycle, producers with higher costs may be forced to exit the market in order to reduce losses. In this process, the market needs to balance supply and demand through price mechanisms, that is, by suppressing supply and stimulating demand through price declines, in order to achieve market clearing. Looking ahead, although lithium prices may continue to be under pressure in the short term, in the long run, as the demand for electric vehicles and energy storage systems continues to grow, the demand for lithium resources is expected to gradually rebound, which may bring about a temporary rebound in lithium prices. Therefore, for participants in the lithium salt market, it is crucial to understand market dynamics, adjust strategies, and prepare for price fluctuations.

3. Industry transparency issues

With the rapid development of the lithium battery industry, the issue of industry transparency is becoming increasingly prominent. In the traditional lithium battery industry chain, the division of labor between raw material suppliers, battery manufacturers, and end application manufacturers is relatively clear. However, in recent years, with industry giants such as CATL and BYD promoting vertical integration of the industry chain, this boundary has gradually blurred. This integration trend has led to transparency in the cost structure of the supply chain, allowing downstream enterprises to participate more directly in the development and utilization of upstream resources, thereby better grasping cost information and profit distribution. For example, CATL's lithium mining projects in Yichun, Jiangxi and Xuehe, Sichuan, as well as BYD's lithium salt project in cooperation with Salt Lake Corporation, are strategic investments made by enterprises to ensure the stability of raw material supply and cost advantages. In addition, these companies are also seeking high-quality lithium resources in Africa and Chile to further consolidate their position in the global lithium supply chain. The increase in transparency in this industry not only helps downstream enterprises improve their bargaining power in procurement negotiations, but also promotes the healthy development of the entire industry and improves market efficiency. However, this also brings new challenges, such as how to protect corporate trade secrets and how to balance the interests of different companies. Therefore, the increase in industry transparency is both an opportunity and a challenge, requiring joint efforts from enterprises, governments, and markets to establish reasonable rules and standards to promote the long-term sustainable development of the industry.

4. Impact of low lithium prices: Capacity restructuring and changes in battery cost structure

The decline in lithium prices has had a profound impact on the entire battery manufacturing industry. Firstly, it led to the restructuring of upstream lithium salt production capacity, with low-cost lithium salt projects being expanded while high cost projects were gradually phased out. This price change not only affects the mining decisions of lithium mines, but also affects the structure of the entire supply chain. With the increase of high-grade spodumene and salt lake lithium extraction projects, the distribution of lithium resources in the market has also changed, which may lead to an increase in lithium resource mining activities in some areas, while other areas may face a decrease in mining activities.

Secondly, the decrease in lithium prices has significantly altered the cost structure of batteries. The reduction in the cost of positive electrode materials allows battery manufacturers to more flexibly adjust their cost structure to adapt to market changes. This cost reduction provides battery manufacturers with the space to lower product prices or improve product performance, thereby gaining an advantage in a fiercely competitive market. Meanwhile, the reduction in the cost of battery cells may also stimulate the demand for electric vehicles and energy storage systems, as the total cost of these products will decrease as a result.

However, the decline in lithium prices has also brought some challenges. For example, a decrease in material costs may lead some companies to reduce their investment in new technologies, as the cost-effectiveness of existing technologies has already improved. In addition, as copper foil and manufacturing costs rise, lithium battery companies need to find new cost saving methods to maintain the competitiveness of their products. This may include seeking more efficient production processes or developing new materials to replace traditional high cost materials.

Overall, the decline in lithium prices is a complex phenomenon that brings both opportunities and challenges. Lithium battery companies need to constantly adapt to these changes to ensure that they can maintain a leading position in the future market. This may mean optimizing existing technologies, or exploring and investing in new technologies. In any case, fluctuations in lithium prices will continue to affect the direction and speed of the battery industry's development.

5. The impact of low lithium prices on the lithium battery industry

1).  The impact of each link in the supply chain

The fluctuation of lithium prices has had a profound impact on various links of the lithium battery supply chain. This section will explore the impact of low lithium prices on the upstream and downstream industrial chains, with a focus on analyzing their effects on profit margins, cost structures, and market dynamics.

Upstream industry (lithium mining companies): In the upstream industry, especially lithium mining companies, a decrease in lithium prices will lead to a significant reduction in profit margins. Companies that purchase lithium resources at high prices or operate under high cost contracts have particularly fragile financial conditions. As lithium prices continue to decline, these companies may face the risk of asset impairment and have to sell their assets at reduced prices. This trend has already emerged, and some companies have started selling lithium mining assets to reduce losses. In addition, companies lacking lithium salt processing capabilities or strong sales channels may be forced to exit the market through asset realization.

Downstream industries (battery manufacturers and end markets): In contrast, low lithium prices have a significant positive impact on downstream industries, especially battery manufacturers. The reduction in raw material costs has eased the pressure on procurement costs, allowing these companies to profit from the price difference between raw materials and battery cells. In addition, the decline in lithium prices can be transmitted along the supply chain, leading to a decrease in the prices of end products such as electric vehicles. This price drop helps to increase the market penetration rate of new energy vehicles, making them more affordable and driving overall demand growth.

2).  The challenge and long-term impact of sustained low lithium prices

Although the short-term effects of low lithium prices are evident, their long-term impact poses significant challenges for upstream industries.

Industry adjustment: Continued low prices may trigger a painful adjustment period for lithium mining companies, especially those with higher operating costs. These companies may need to resort to selling assets or reducing production as a survival strategy. The entire industry may enter a phase of integration, where only the most cost-effective enterprises can continue to survive.

Determination of price bottom line: The continuous decline in lithium prices is actually the cost limit required to maintain supply-demand balance in the testing industry. The expected price bottom line will be determined by the mining and refining costs of lithium, especially spodumene, which currently dominates global lithium production. In the short term, the bottom line of lithium prices may stabilize around the mining cost of spodumene, estimated to be around 60000 yuan per ton. This cost threshold is expected to become a natural constraint for further price declines, ensuring the feasibility of production for key industry participants.

3).  Market dynamics and industrialization

The lithium battery industry is characterized by rapid industrialization and scale, constantly striving to improve cost-effectiveness and product accessibility.

6. Price optimization

The decrease in lithium prices is not to clear supply, but to optimize the production capacity of the industry. As the industry matures, cost-effectiveness driven by market competition becomes increasingly important. The continuous decline in lithium prices reflects a broader trend in the industry to pursue price optimization, ensuring that the industry maintains competitiveness while maintaining long-term growth.

7. Standardization and Cost Reduction

In the past decade, the lithium battery industry has gradually achieved a higher degree of standardization, with products becoming increasingly unified in design and quality. As the industry further develops commercial applications and expands into the consumer market, this trend is expected to continue. The continuous decline in lithium carbonate prices reflects the industry's efforts to promote cost reduction and product popularization, making lithium battery products more attractive to a wider consumer group.

The sustained low lithium prices are reshaping the lithium battery industry. Although these prices help downstream industries reduce costs and may increase market penetration, they pose significant challenges to upstream industries, especially those with high mining costs or expensive contracts. As the industry develops towards greater efficiency and cost optimization, lithium prices are expected to stabilize at the cost limit of maintaining supply-demand balance, thereby promoting the popularization and affordability of lithium battery products.

conclusion

In the current global market, the price fluctuations of lithium carbonate have had a significant impact on the entire lithium battery industry chain. The decline in prices has indeed brought cost advantages to battery manufacturers, but this trend has also exposed the vulnerability of lithium mining enterprises in terms of economic benefits and asset value. With the increasing demand for lithium resources in the market, the stability of the supply chain has become a key issue. Enterprises must adapt to price fluctuations and maintain competitiveness through technological innovation and improved production efficiency. In addition, the requirements of environmental protection and sustainable development have also prompted the industry to constantly seek more environmentally friendly mining and processing methods. In this context, the future of the industry will depend on multiple factors, including technological progress, market demand, environmental policies, and international trade dynamics. Therefore, participants in the lithium battery industry need to closely monitor market changes and flexibly adjust their strategies to ensure survival and development in a dynamically changing market. The stabilization of lithium carbonate prices is not only crucial for manufacturers and mining companies, but also has far-reaching implications for promoting the widespread application of electric vehicles and renewable energy storage solutions. Ultimately, this will contribute to the transformation of the global energy structure and promote green economic growth