Lithium acid prices have repeatedly hit new lows and are getting closer to the bottom?

After falling below the important threshold of 80000 yuan/ton, there is still no signal of a halt in the decline of lithium carbonate futures. 

On August 9th, the main contract LC2411 for lithium carbonate futures fell 2.33% to 77550 yuan/ton, hitting a new low since its listing. 

Lithium carbonate spot prices are also showing a bearish trend. 

According to data from Fubao New Energy, on August 9th, the average price of battery grade lithium carbonate was reported at 79000 yuan/ton, 

unchanged from the previous trading day.

When it comes to the reasons why the price of lithium carbonate has repeatedly hit new lows, Yu Shuo, 

an analyst at Chuangyuan Futures, believes that the main reason is the continuous existence of supply and demand gap, 

which leads to the accumulation of lithium carbonate inventory. 

The strong supply and weak demand on the spot side form a negative feedback with the decline in the market. 

Zhang Weixin, a futures analyst at CITIC Securities, also believes that the fundamental reason for 

the decline in lithium carbonate prices is that the pattern of oversupply has not shown any signs of improvement.

From the inventory data, lithium carbonate is still in a continuous state of accumulation. 

According to SMM data, as of the week of August 9th, the weekly inventory of lithium carbonate has exceeded 130000 tons. 

At present, the weekly accumulation of lithium carbonate in China is still above 3000 tons, 

although it has decreased from 4000 tons per week in the past, it is still in a rapid accumulation state. 

Zhang Weixin said that even considering the increase in production scheduling in August due to the peak season,

 it is difficult to change the accumulation trend.

From the current market trading logic, Zhang Weixin believes that the main way to achieve clearance is to reduce supply through price drops. 

However, there is currently a lack of new highlights on the demand side, 

making it difficult to improve the supply-demand relationship through further growth in demand. 

From the perspective of resources, Yu Shuo stated that since 2020, 

the high growth rate of demand for new energy vehicles has led to a surge in lithium carbonate prices, sparking a global trend of lithium resource development. 

Due to the fact that it takes at least 3 years from development to production on the resource side, 

major lithium resource projects, including Bikita, Arcadia, Sabi Star mines in Africa, 

and South American salt lakes, will begin production in 2023. 2024 is a critical period from production to ramp up production,

with lithium supply growing at a rate of 30% to 40% throughout the year, and global lithium demand growth declining to around 20%.

From the current industry changes, low prices have caused delays and suspensions in some long-term planning projects.

 According to the latest Q2 report released by international lithium mining giant Albemarle Group, its net loss reached $188 million, 

and its sales also decreased by nearly 40% compared to the same period last year. 

For this reason, Albemarle Group has announced an emergency halt to its production lines 2 and 3 at Kemerton Lithium Processing Plant in Australia. 

The factory's annual supply of 50000 tons will be directly reduced by half.

 In addition, according to recent data released by Chilean customs, the country's exports of lithium carbonate to China in July were only 15700 tons, 

a sharp decrease of 9.6% from the previous month, and have been declining for three consecutive months.

Although delaying project planning can help alleviate future supply pressure, 

the combination of existing projects and projects that will soon be put into operation in the short term is sufficient to cover the current and next year's new demand, 

with a surplus. Zhang Weixin believes that the market originally had expectations for a bottom support of 80000 to 85000 yuan/ton, 

but there was no obvious reduction or shutdown behavior after the price fell to this region, 

which forced traders to re evaluate cost support and lower their judgment of the bottom, 

resulting in a continuous decline in prices on the market. The current market is more concerned about the behavior of stock supply, "said Zhang Weixin.

From the supply side, although there are expectations of a reduction, the total output continues to remain high. 

According to SMM data, the total domestic production of lithium carbonate (including recycling) in July was 64960 tons, 

a decrease of 1.94% compared to the previous month and an increase of 43.36% year-on-year. 

Most lithium salt factories at the spodumene end maintained high operating rates in July. 

Some top lithium salt factories completed maintenance and technological upgrades in July, resulting in an increase in production. 

Some non integrated lithium salt factories at the spodumene end experienced a decline in production due to weak downstream demand and the risk of cost inversion. 

Under the trend of fluctuation, lithium carbonate at the spodumene end showed a slight increase in July compared to the previous month. 

The non integrated lithium salt factories on the lithium mica end have experienced varying degrees of cost inversion, 

and the continuous decline in prices has made it difficult for these lithium salt factories to ship. Eventually, they chose to reduce production. 

The lithium salt factories on the lithium mica end saw a significant decline in production in July, with a month on month decrease of 12.3%. 

July remains the peak production period for the lithium salt plant at the salt lake end, with a high operating rate.

Previously, the market held a pessimistic attitude towards the fundamentals of lithium carbonate in 2024. 

In the first quarter of 2023, due to phased demand, the price of lithium carbonate showed a relatively strong performance, 

fluctuating in the range of 100000 to 120000 yuan/ton, providing hedging opportunities for upstream lithium salt factories. 

When it comes to the reasons for the sustained high production of lithium carbonate, Yu Shuo believes that on the one hand, 

early hedging behavior helped lithium salt factories avoid the risk of decline; 

On the other hand, the price of lithium carbonate has fallen, and mining prices have also continued to decline, resulting in a narrowing of the overall inversion range. 

Reflected in the market, the most intuitive feeling is that prices continue to fall while there is an increasing amount of spot goods. 

The positive electrode factory with the lowest profit in the industrial chain has a low willingness to stockpile during the lithium carbonate downturn cycle. 

In addition, it mainly relies on long-term supply agreements, and there is little demand for spot market procurement. 

Therefore, during the price decline process, there are almost no transactions in the market, mainly relying on spot arbitrage. 

Spot goods are difficult to provide support to the market, resulting in negative feedback. 

If hedging behavior is considered, lithium salt factories will not significantly reduce production in the short term, and cost support will become ineffective, "said Yu Shuo.

Compared to supply, the market focuses more on the growth of demand. 

According to data released by the China Automotive Power Battery Industry Innovation Alliance, 

the total production of power and other batteries in China in July was 91.8 GWh, an increase of 8.6% month on month and 33.1% year-on-year. 

Among them, the production of ternary batteries was 23GWh, a year-on-year increase of 9.7% and a month on month increase of 12.2%; 

The production of lithium iron phosphate batteries was 68.5GWh, a year-on-year increase of 43.2% and a month on month increase of 7.5%. 

Driven by the demand for new energy vehicles and energy storage, China's battery production has reached a new monthly high. 

From January to July, the cumulative production of power and other batteries in China was 521.8 GWh, a year-on-year increase of 36.2%.

Has the current market received a signal to stop the decline? 

Wu Jiang, an analyst at Guotou Anxin Futures, believes that as the center of gravity of lithium prices shifts downwards, 

the resistance of spot and mining sectors is weak.

 If there are no major changes in the peripheral market, the overall trend of the market is to lower prices until the mining sector reduces production. 

In the short term, focus on two indicators: one is the price difference between futures and cash, 

which is still within a reasonable range, and the other is the Australian mineral price. 

The cessation of the decline in the mining sector is a necessary signal for the cessation of the decline in lithium carbonate prices, "said Wujiang.

Zhang Weixin believes that there are several judgments regarding price stabilization: firstly, 

there is a new consensus in the market regarding costs, and traders are reorganizing the cost curve. 

When a new consensus is formed, prices may gradually stabilize. 

The formation of this bottom on the market may manifest as a sharp decline and rebound, 

which is a technical bottom confirmed by volume and price. 

More importantly, the behavior of upstream enterprises confirms the bottom, 

and the supply-demand relationship must be achieved through a reduction in the supply side from oversupply to basic supply-demand balance. 

This may be due to the enterprise actively lowering the operating rate, or some high cost projects being forced to withdraw. 

This is an enterprise decision-making behavior, and it is difficult to make evidence-based predictions at the time node and scale.

Looking ahead to the future, Zhang Weixin believes that there are currently no factors that can promote price rebound, 

and the downward trend will continue. However, the downward trend is expected to be in the tail stage, 

and the absolute price is expected to be close to the bottom of this cycle. 

Next, we will wait for the appearance of the bottom on the trading side and the confirmation of the bottom by the supply side behavior. 

Yu Shuo also believes that from the current trend, 

the "golden September and silver October" are not enough to bring about a significant rebound, and there is still room for price decline.