Stop production cuts from lithium industry giants! Observe the trend of lithium carbonate

There is a cold wind blowing in the lithium industry, and the price of lithium is still falling. International giants have also beginning to respond. 

Recently, Mineral Resources, an Australian lithium mining giant, announced that due to the long-term low price of spodumene concentrate, its lithium mining project Bald Hill will start "maintenance" and its mining operations will be suspended.

Coincidentally, at the same time, Lion town, another lithium mining giant in Australia, has also cut production, and plans to reduce the lithium mineral production target for the end of fiscal year 2027 from about 4 million tons to 2.8 million tons per year.

So far, only in Australia, the top producer of lithium ore, four lithium ore giants have recently announced that they will stop production or reduce production. This series of new actions may have a certain impact on the whole industrial chain, including new energy vehicles, power batteries, raw materials and so on. 

1) Stop production and reduce output to cope with low prices

According to the data on November 26th, the price of battery-grade lithium carbonate dropped by 400 yuan compared to the previous trading day, and the average price was 78800 yuan/ton.

Lithium giants responded by suspending production and reducing production. After Bald Hill, a lithium mining project, stopped, mineral resources companies may only retain around 10 of the original employees. Hundreds of other employees will be transferred to other businesses of mineral resources companies in Western Australia, and if there are no job vacancies, they will go through the process of layoffs. Therefore, it is estimated that the shipment of Bald Hill spodumene concentrate will be reduced by half in FY 2025. Mineral resources company said that this measure is a necessary to maintain the asset value and cash flow of Bald Hill.

The shutdown of resources and the announcement of the reduction plan by Lion City are not independent events. In the first half of this year, Australian lithium miner Core Lithium announced that it would suspend mining business of its Finnis project, and made it clear in the semi-annual report that all mining and processing businesses had been suspended. In July of this year, Albemarle, the world's largest lithium miner, announced the suspension of production on multiple production lines at its Kemerton lithium processing plant in Australia. In October, Australian lithium miner Pilbara announced that it would maintain its Ngungaju plant from December 1st and reduce the lithium concentrate production in FY25.

At present, Australia is the largest source of lithium resources in the world, and lithium ore accounts for about 47% of global lithium raw material supply. Whether the lithium mining giants stop production or reduce production, the purpose is to increase the pressure of contraction on the supply side of the market and force the price of lithium to stabilize and rise, "Lin Sen, a researcher at Guangdong New Energy Vehicle Development Research Center, told reporters. Due to the rapid development of the entire lithium industry chain and the downstream new energy vehicle industry in recent years, the lithium mining supply market is sufficient. Therefore, although the price of lithium carbonate has fluctuated to some extent recently, it is mostly below the supply-demand balance cost line of 80000 yuan/ton. Therefore, lithium mining giant hopes to raise market prices by stopping production and reducing production. 

2) Price fluctuations persist during the off-season

Some people say that the joys and sorrows of the industry all come from the price of lithium. Rightly or wrongly, the rise and fall of lithium prices has really attracted the attention of the industry.

The report shows that the price of lithium will still facing temporary downside risks in the near future. According to a research report, the price of lithium may continue to decline in the next two months due to the seasonal downturn in chemical replenishment. However, in the long run, weak prices may put pressure on the less competitive lithium producers. In addition to the lack of upward momentum in spot trading, the real-time market trend of lithium carbonate futures shows that the recent price has been fluctuating at a low level.

In fact, since the beginning of this year, the drop of lithium prices has become a focus of attention for new energy vehicles, power batteries, raw materials and so on. At the beginning of the year, lithium carbonate futures dropped from 122800 yuan/ton to 71150 yuan/ton, with a decrease of 41.77%. In September, supported by peak season demand, downstream production data improved, and the supply decreased to some extent, which led to the decline in inventory. The contract price of lithium carbonate futures rebounded from 71200 yuan/ton to 79750 yuan/ton. At the beginning of October, there was a strong macro bullish atmosphere, and the price of lithium carbonate futures contracts soared to 84800 yuan/ton. However, the supply and demand were unable to support a significant increase. Against the background that the macro bullish atmosphere has subsided and the off-season is approaching, the lithium carbonate futures price has fallen below the previous low.

Since the beginning of this year, lithium carbonate futures have generally shown a trend of rebounding first, then fluctuating and then falling. "yu Dongsheng, a researcher at the New Energy Application Technology Research Center of Northwestern Polytechnical University, believes that the lithium carbonate market did not experience the off-season of supply and demand in November as it did in previous years. On the contrary, due to factors such as the growth of overseas energy storage and power battery exports, and the promotion of new energy vehicle sales through the trade in policy, the price of lithium carbonate has shown a slight rebound, with demand exceeding expectations.

From a terminal point of view, new energy vehicles and energy storage are still the main driving forces for the growth of lithium carbonate consumption, "Lin Sen said." Lithium mines will continue to increase in volume from the end of 2022 and will shift to surplus in 2023. In 2024, mineral resources will still be released greatly, and the excess pressure will be difficult to ease. Moreover, since the beginning of this year, the production and sales volume of new energy vehicles in China have maintained a relatively high growth rate, while the sales volume of overseas new energy vehicles have declined year-on-year. From January to October, the domestic production of new energy vehicles was 9.779 million units, with sales of 9.75 million units, an increase of 33% and 33.9% year-on-year, respectively. Under this growth trend, the supply of lithium is not weak in off-season. 

3) Respect for laws and stability are of paramount importance

Data show that from January to October, the cumulative installed capacity of power batteries nationwide increased by about 51% year-on-year. Compared with ternary materials, lithium iron phosphate batteries account for more than 70%, which is the main demand composition of lithium carbonate. In terms of energy storage, the market can still maintain a high-speed growth trend. From January to October, the bidding capacity was 106.6 GWh, a year-on-year increase of 67%. In 2025, the growth rate is expected to remain high.

Although there are various factors that affect the price of lithium, some of them are also changing, "said Lin Sen.. In the past, entering the off-season for lithium carbonate replenishment would affect and bring about lithium price fluctuations, and the change of lithium price supply and demand would also affect lithium prices. At present, the low fluctuation of lithium prices may bring pressure on lithium producers. In addition, the overall situation of the global economy will also have an impact on the price of lithium, including demand changes and policy adjustments. Generally speaking, the fluctuation of the lithium carbonate market tends to be rational gradually, which is mainly driven by market fundamentals. If the overall supply and demand pattern does not change significantly next year, it is estimated that the market price of lithium carbonate may still fluctuate between 70,000-90,000 yuan in the near future.

It is worth noting that recent suspension and reduction of production of international lithium industry giants have brought some new changes in the global lithium industry. Due to the interaction of multiple factors, the demand for lithium batteries continues to maintain a strong growth trend. Several important lithium mines in Australia have stopped or reduced their supply, providing an opportunity for the rebound of lithium prices. However, whether the price of lithium can rebound or not, and how strong the rebound is, depends on many factors, and is not necessarily determined by the suspension or reduction of lithium ore production. Yu Dongsheng believes that in the long run, the healthy and sustained development of the new energy automobile industry will inevitably bring good opportunities to the lithium market. Therefore, we should also have a long-term view on this issue. If the overall pattern of the industry remains unchanged, the price of lithium carbonate will fluctuate between 55,000 yuan and 100000 yuan in the next 1-2 years. But generally speaking, stable lithium prices is also beneficial for the development of the whole industry.

From this point of view, lithium price fluctuations is inherent in the market, and the industry will still hold a wait-and-see attitude towards the future lithium prices.