Lithium carbonate will fall into the 70000 era

(30 day futures market for a certain period of time)

On July 29th, the main contract for lithium carbonate futures closed at 83400 yuan/ton, a decrease of 4.03%. 

In terms of spot goods, 

SMM data shows that battery grade lithium carbonate has dropped by 600 yuan/ton compared to the previous day, with an average price of 84250 yuan/ton.

To promote the upgrading of old equipment and consumer goods, on July 25th,

 the National Development and Reform Commission

 and the Ministry of Finance jointly issued the "Several Measures to Increase Support for Large scale Equipment Renewal and Consumer Goods Trade in",

 which significantly increased the subsidy amount for new energy vehicles. 

The subsidy amount for scrapping National III and below fuel passenger vehicles or new energy passenger vehicles registered before April 30, 2018, 

and purchasing new energy passenger vehicles has been increased from 10000 yuan to 20000 yuan, 

and the subsidy amount for purchasing 2.0L and below fuel passenger vehicles has also been increased from 7000 yuan to 15000 yuan.

Gu Fengda, Chief Analyst of Guoxin Futures, 

believes that although policies provide strong support in multiple aspects, the low price of lithium carbonate limits the policy's ability to boost the market.

 Affected by the market supply and demand relationship, the current spot price of lithium carbonate has fallen back to the low point at the end of the first quarter of 2021,

 indicating that in the current pattern of strong supply and weak demand, even with strong policy support, the lithium carbonate market still faces high supply and high inventory suppression. 

Gu Fengda stated that the price of lithium carbonate reflects the market supply and demand relationship, 

and even though the policy side has a significant promoting effect on the demand for new energy vehicles, the price has not significantly increased due to the relatively sufficient supply of lithium carbonate.

In April of this year, the Ministry of Commerce and seven other departments jointly issued the "Implementation Rules for Automobile Trade in Subsidies", 

which proposed that by the end of 2024,

 a one-time fixed subsidy would be given for scrapped National III and below emission standard fuel passenger vehicles or

 new energy passenger vehicles registered before April 30, 2018 and purchased new vehicles. 

Among them, a subsidy of 10000 yuan would be given for scrapping the above two types of old vehicles and purchasing new energy passenger vehicles that meet the purchase tax exemption, 

and a subsidy of 7000 yuan would be given for scrapping National III and below emission standard fuel passenger vehicles and purchasing 2L and below displacement fuel passenger vehicles.

However, based on the actual implementation situation, as of the end of June, although the number of applications for scrapping and updating subsidies exceeded 150000 vehicles, 

there is still a significant gap compared to previous expectations, and the goal of recycling 3.78 million scrapped cars for the whole year is still far away.

The subsidy intensity of the new policy has significantly increased, but the overall restrictions on scrapped vehicles are relatively large and the subsidy intensity is weak. 

Based on the implementation effect of the 2008 car trade in policy, the sales volume of the car market rebounded to varying degrees during the policy implementation period,

 but the sales volume showed a significant decline after the policy was withdrawn. It can be seen that the trade in policy did not create demand, and more emphasis was placed on pre demand.

 "Zhang Yuan, a senior researcher at CITIC Futures Research Institute, believes that in the longer term, subsidies cannot create new demand, so the boosting effect of this round of policies is limited.

From the spot market perspective, according to SMM data, on July 29th, battery grade lithium carbonate was reported at 84250 yuan/ton,

 which has fallen back to the low point at the end of the first quarter of 2021.

Can the current price form an effective bottom support in the face of high supply and high inventory pressure?

Although market demand has shown some growth potential, the strong supply side and sustained accumulation of inventory have significantly suppressed prices.

 The future trend of lithium carbonate prices largely depends on changes in the supply side and actual growth in the demand side, 

and close attention should be paid to the possibility of supply reduction and demand exceeding expectations. 

Gu Fengda believes that under current conditions, lithium carbonate prices will still hover at a low level.

The logic of bottom support is that below the support price, companies will reduce production due to losses, resulting in supply reduction. 

In the current situation, 85000 yuan/ton may not be a bottom support.

 "Zhang Yuan explained that firstly, the market generally believes that the market cost support is between 70000 and 80000 yuan/ton, 

and there is no obvious reduction in production by companies near the current 85000 yuan/ton level. The recent Pilbara report shows that it is still striving to expand production.

 Secondly, most companies are currently reducing costs, and production costs may gradually decrease in the future. 

Even if the price range of 80000 to 85000 yuan/ton is supported by speculative demand, it will be gradually eroded in the context of oversupply. 

Overall, in a downward cycle, a large number of companies may only form bottom support if they suffer losses, "said Zhang Yuan.

From a fundamental perspective, Gu Fengda believes that the current downward pressure on lithium carbonate prices mainly comes from high inventory and sufficient supply.

 On the supply side, the lithium carbonate market is still in a state of sufficient supply. 

According to SMM statistics, the total production of lithium carbonate in China is expected to be 66800 tons in July, a year-on-year increase of 47% and a month on month increase of 0.7%. 

In addition, the import price of lithium ore has fallen, and the prices of spodumene and lithium mica concentrates have also shown a downward trend, further lowering the cost and price of lithium carbonate. 

Despite the brief impact of the Chilean earthquake, actual supply was not significantly affected, and the market quickly returned to fundamental trading, with lithium carbonate futures prices hitting a new low since listing.

 Gu Fengda said that on the demand side, although the new energy vehicle market performed well, overall demand was still insufficient to digest high inventory, 

and there was no significant month on month increase in market demand, making it difficult for lithium carbonate prices to receive effective support.

In terms of inventory, inventory has been accumulating since April.

 According to SMM statistics, as of the week of July 25th, the total social inventory of lithium carbonate has exceeded 120000 tons. 

Yu Shuo, an analyst at Chuangyuan Futures, believes that the current high inventory has exerted a strong pressure on prices, 

and the growth rate on the demand side is still insufficient to alleviate the problem of fundamental oversupply.