Lithium carbonate continues to bottom out, setting a new low

On July 31st, data from Shanghai Nonferrous Metals Network showed that the average price of battery grade lithium carbonate was 82000 yuan/ton, 

a decrease of 400 yuan/ton from the previous day, 

and the average price of industrial grade lithium carbonate was 77050 yuan/ton, a decrease of 400 yuan/ton from the previous day.

 In the futures market, as of the closing, the main contract price for lithium carbonate was 82700 yuan/ton, up 0.98%

Recently, the lithium carbonate futures market has experienced significant price fluctuations. 

On July 30th, the main contract for lithium carbonate futures fell more than 4%, 

closing at 81150 yuan/ton, hitting a intraday low of 80700 yuan/ton, setting a new low since its listing.

It is worth noting that the cost line of some lithium mining enterprises that extract raw materials is around 90000 yuan/ton. 

Currently, the price of lithium carbonate has fallen below the cost line of such enterprises, 

and lithium salt production enterprises have experienced a serious inversion of cost prices,

 resulting in a significant decline in the performance of some lithium mining enterprises.

The supply and demand relationship of lithium carbonate remains weak

In the first quarter of this year, the price of lithium carbonate experienced a rebound, reaching a peak of 125000 yuan/ton.

In terms of futures, since June, the price of lithium carbonate has rapidly declined and has been continuously falling. 

With a new low since its listing on July 30th, the decline of lithium carbonate this year has reached as high as 25%.

 In terms of spot goods, since May this year, 

the price of lithium carbonate has also entered a volatile downward trend, with a drop of up to 30% in the past three months.

he sustained sharp decline in lithium carbonate prices is related to its weak supply and demand situation.

On the supply side, the actual production reduction scale of upstream lithium salt plants is limited, 

and the operating rate in Qinghai region is still at a high level, with domestic lithium carbonate production at a high level.

 On the demand side, the domestic new energy vehicle market lacks highlights.

 According to data from the China Association of Automobile Manufacturers, retail sales of new energy passenger vehicles in China decreased by 2% month on month from July 1st to 21st, reaching 461000 units.

Under the loose supply pattern, the continuous accumulation of inventory in the upstream and downstream of the industrial chain has dragged down the price of lithium carbonate.

According to data from Shanghai Nonferrous Metals Network,

 the domestic production of lithium carbonate in June was 66243 tons, an increase of 5.9% compared to May, 

and a cumulative year-on-year increase of 48.6% in the first half of the year; 

According to third-party data statistics, the production of domestic materials such as lithium iron phosphate decreased by about 2% month on month in July, 

while the production of ternary materials increased by 15% month on month. 

The production growth in August was also relatively limited. 

On the other hand, domestic imports of lithium carbonate continue to rise, exacerbating the pattern of oversupply of lithium carbonate,

 leading to a recent downward trend in lithium carbonate prices and reaching new lows.

Institutions predict that it may fall below the 80000 yuan mark

Looking ahead, the expected trend of lithium carbonate prices is still full of uncertainty.

Liu Xianjie, a non-ferrous researcher at the Minmetals Futures Research Center, said that looking ahead to the second half of the year, 

there will be significant pressure from short-term off-season excess, and inventory has not yet reached a turning point. 

Lithium prices may continue to fluctuate weakly, and there is no possibility of further decline to break through the 80000 yuan mark,

 in order to test the bottom line of upstream enterprises' tolerance for lithium carbonate prices.

Che Guojun, chief researcher of Ping An Futures' non-ferrous sector, also stated that looking ahead to the second half of the year, under the pattern of oversupply, 

there will be an imbalance between supply and demand in the lithium carbonate market, 

and the continued downward price may force some companies to reduce production, thereby easing the supply pressure on the market to a certain extent.

 Considering that the current market inventory is expected to continue the trend of accumulating inventory,

 the destocking process is facing difficulties, and the price of lithium carbonate may continue to bottom out. 

The industry's capacity destocking is also relatively slow, and the price of lithium carbonate is likely to fall below the 80000 yuan mark.

 Considering the impact of cost support, the bottom is temporarily seen at around 75000 yuan/ton.

Changan Futures analyst Wang Chuhao believes that the current lithium carbonate market is showing a downward trend,

 with a pessimistic market sentiment but prices have already fallen to a lower level.

 From the fundamental situation, lithium carbonate may continue to decline, and it is not impossible for it to fall below 80000 yuan/ton.

However, from a medium to long term perspective, Liu Xianjie believes that lithium prices have reached a relatively bottom region.

 If lithium carbonate prices remain weak, it may drive mining production cuts to improve the supply and demand balance of lithium carbonate. 

Wang Chuhao believes that the price of lithium carbonate may continue to rebound until mid August.

Lithium mining companies face pressure on performance

The continuous decline in lithium carbonate prices has put pressure on the stock prices and performance of lithium mining companies.

In terms of stock prices, the entire energy metal sector index fell nearly 20% this year, Ganfeng Lithium fell nearly 30% this year, and Tianqi Lithium fell more than 45% this year.

In terms of performance,

 it is not difficult to see from the recently disclosed performance forecasts for the first half of 2024 by multiple industry companies such as Tianqi Lithium, Ganfeng Lithium, Rongjie Shares, 

and Yanhu Shares that the decline in lithium prices has not only significantly weakened the profitability of upstream mining enterprises, but also caused companies to expect losses due to sluggish prices.

According to the data released in 2023, representative companies that extract lithium from salt lakes,

 such as Zangge Mining and Salt Lake Corporation, have a lithium raw material cost of approximately 30000 to 40000 yuan/ton; 

The representative enterprise of mica lithium extraction, such as Jiangte Electric, has a lithium raw material cost of about 80000 to 100000 yuan/ton,

 while the production cost of spodumene ore is between the two. 

As the price of lithium carbonate approaches or even falls below the cost line of some companies, 

there has been a significant differentiation in the performance of a group of mining enterprises.

Taking Tianqi Lithium, a leading lithium mining company, as an example, the company expects a loss of 4.88 billion yuan to 5.53 billion yuan in the first half of the year, 

while the company will make a profit of 6.452 billion yuan in the same period of 2023. For the expected loss in performance, 

the company stated that it was mainly due to a significant decrease in the sales price of lithium products compared to the same period last year, 

resulting in a significant decrease in the gross profit of lithium products.

 However, the company's Q2 loss has narrowed compared to the previous quarter.

Ganfeng Lithium and Tianqi Lithium are in a similar situation,

 with the company expecting a loss of 760 million to 1.25 billion yuan in the first half of the year, compared to a profit of 5.85 billion yuan in the same period last year. 

Ganfeng Lithium explained that despite the year-on-year increase in product shipments, the continuous decline in lithium prices has forced the company to face a loss situation.

In addition, some companies have not incurred losses, but their profitability has declined.

 According to the performance forecast of Rongjie Co., Ltd., 

the expected profit for the first half of the year is 152 million yuan to 185 million yuan, a year-on-year decrease of 38.79% to 49.71%. 

Yahua Group expects to achieve a net profit of 80 million to 120 million yuan in the first half of the year, a year-on-year decrease of 87.38% to 91.58%.

In the absence of sufficient driving force for lithium price increases, the competitive landscape of lithium mining enterprises may undergo new changes. 

Analysts in the lithium salt industry believe that if lithium prices continue to remain low,

 small and medium-sized smelting and processing plants lacking resource support may gradually exit the competitive sequence.

Zhongyuan Securities' research report predicts that the lithium battery sector's annual performance will continue to be under pressure, 

and the performance of segmented fields and targets will continue to differentiate.

 Although the demand for downstream lithium batteries continues to grow, the growth rate is slowing down, 

and the release of production capacity may further pressure the industry's profitability.