The current situation of China's lithium industry in 2024

The lithium industry has developed rapidly in recent years. As an important part of the new energy industry, its market performance and development trends have been widely concerned. According to a report by China Merchants Bank Research Institute, in 2024, the lithium industry will show significant characteristics and changes in terms of supply, demand, price and cost structure. 

1)Supply: the upstream expansion is accelerated, and the midstream speed is slowed down

In 2024, the expansion speed of upstream mines in the lithium industry will be significantly accelerate, and the global supply capacity of lithium mines will continue to strengthen. According to data, in 2024, the planned annual production capacity of upstream mines is 953000 tons of lithium carbonate equivalent (LCE), with a year-on-year growth rate of 52.2%, which is further expanding compared to 2023. In terms of regional distribution, Australia continues to dominate the global supply of lithium ore. It is estimated that by 2024, Australia's annual production capacity will be 600000 tons of LCE, accounting for 63% of the global total production capacity of lithium concentrate. In addition, the proportion of lithium mineral energy in South America and Africa has increased. It is estimated that the LCE in 2024 will be 120,000 tons and 209000 tons, accounting for 12.6% and 21.9% respectively. 

Specifically, as far as the new production capacity of each regions is concerned, an annual production capacity of 327000 tons of LCE will be increased in 2024, mainly due to the mine expansion in Australia, South America and Africa. Australian mines have added 153000 tons of LCE, accounting for 46.7% of the new production capacity, mainly from the expansion and commissioning of Wodiga mine, p 680 project, Kathleen Valley mine, and Mt Holland project. South American and African mines also contributed 154000 tons of new LCE production capacity, with Brazilian mines adding 91000 tons of LCE and Malian mines adding 63000 tons of LCE.

In contrast, the growth rate of smelting capacity in the middle reaches of the lithium industry has slowed down significantly. In 2024, the annual global smelting capacity was about 1.945 million tons of LCE, with a year-on-year growth rate of only 20.5%, which was significantly lower than the growth level in 2023. The growth of smelting capacity mainly focuses on the development of salt lake resources, while the growth rate of smelting capacity using spodumene and lepidolite is relatively slow. This imbalance in supply leads to more obvious pressure on upstream mines, and it is expected that the price of lithium concentrate will face greater downward pressure. 

2)Demand side: the demand for power batteries has slowed down, while the development of energy storage batteries has accelerated

The demand of lithium industry mainly comes from the production of power batteries and energy storage batteries. However, the growth rate of demand for power batteries will significantly slow down in 2024, and the problem of structural surplus is gradually becoming apparent. According to estimates, the total output of domestic power batteries and energy storage batteries will be about 821 GWh in 2024, up about 5.5% year-on-year. Assuming that the battery product structure remains unchanged, it is estimated that the demand for lithium in domestic power batteries and energy storage batteries is about 741000 tons LCE, and the global demand for lithium is about 1.064 million tons LCE, with a year-on-year growth rate of only 8.3%. 

The uncertainty in the power battery market mainly comes from the lower-than-expected production and sales of new energy vehicles and the homogenization of product, and the industry will face a reshuffle. In contrast, the energy storage battery market has ushered in an opportunity to accelerate development. Under the dual influence of policy stimulus and economic promotion, both the pre - balance sheet large reserve and household reserve markets have shown activity. China has increased its policy support for energy storage, which has led to the growth of demand for energy storage batteries. In the international market, the US Inflation Reduction Act (IRA) and Europe's energy transition plan have further promoted the development of the energy storage market.

Although the development of energy storage batteries has brought about a certain demand for lithium, the overall demand scale is still relatively small, making it difficult to fully compensate for the impact of the slowdown in the growth rate of power battery demand. 

3)Price and Trend: Supply exceeds demand leading to price decline, causing differentiation in enterprise response strategies

As the growth of supply in lithium industry exceeds the growth rate of demand, the lithium salt market will face a more obvious situation of oversupply in 2024, and the price will show a downward trend. It is estimated that the supply of lithium salt will reach 1.29 million tons of LCE in 2024, exceeding the demand by 226000 tons of LCE, and the phenomenon of supply exceeding demand will be more severe than that in 2023. In the face of downward pressure on prices, some smelting enterprises choose to reduce production to cope with price shocks and reduce potential losses by reducing inventory. In addition, some companies have slowed down new investment plans in order to maintain good operating cash flow.

In terms of cost structure, it is estimated that the industry-weighted average cash cost will be 53,000 yuan/ton in 2024, which is higher than that in 2020. With the changes of the global smelting capacity structure, the proportion of lepidolite smelting increases, while the proportion of lithium salt lakes and spodumene decreases. This adjustment of production capacity structure will also have a great impact on the future cost and price trends of the lithium industry.

Qian Ji Investment Bank believes that the lithium industry will face the challenge of slow growth of supply and demand in 2024, and the oversupply caused by the expansion of upstream mines will exert great pressure on market prices. Although the development of energy storage batteries provides a certain growth momentum for the industry, the overall slowdown in demand growth makes the industry's prospects full of uncertainty. In the future, the lithium industry will need to continue to make efforts in supply-demand balance, cost control, and technological innovation to cope with the challenges brought by market changes.