Domestic Lithium Market Investment Report

Domestic Lithium Market Investment Report

abstract

Australian mining production performance falls short of expectations: As we enter 2024, overall lithium mining production in Australia falls short of expectations, but there has been no significant reduction in production. In the second quarter, the inventory of lithium mines in Australia has returned to the previous level.

Lithium salt companies use futures hedging: With the decline in lithium ore prices, some lithium salt companies have achieved cost control through futures hedging strategies, expanding the profit margin of the lithium salt end.

The resonance phenomenon of destocking may trigger a price rebound: if there is a synchronous destocking situation between the mining and lithium salt ends in September, lithium prices may usher in a new round of upward trend.

1. Inventory and production status at the mining end

Australian lithium mine inventory returns to level: In early 2024, the production situation of Australian mines fell short of expectations. Due to the depletion of open-pit resources and cost issues, the Cattlin mine will shut down in the second half of the year, affecting production of approximately 9000 tons of LCE (lithium carbonate equivalent). In addition, Finnis mine has also stopped mining raw ore due to cash flow issues, affecting production of 11200 tons of LCE. However, despite the decline in production capacity of individual mines, the overall Australian lithium mine inventory has returned to its previous level in the second quarter. The shipment volume of Greenbushes mine reached 530000 tons in the second quarter, of which Tianqi Lithium purchased 200000 tons from Talison Mining as a supplement to the previously specified purchase quantity.

Port shipping volume has decreased: According to data from the Port of Hedland (near Pilbara and Wodgina mines), the export of spodumene concentrate to China in July was 92500 tons, approximately 11500 tons of lithium carbonate equivalent, a year-on-year decrease of 52.65%. It is expected that domestic ore inventories will be further cleared in August, and the market supply may change.

2. Marginal decline in domestic spodumene inventory

Inventory trend: Since 2023, the inventory of lithium mines in China has continued to increase, reaching a peak of approximately 160000 tons of LCE in the first quarter of 2024. Subsequently, inventory gradually decreased and dropped to 126000 tons of LCE by June. However, after February, the supply-demand balance sheet of spodumene showed an intensification of supply-demand mismatch, leading to the accumulation of lithium salt inventory.

Market response: The Jiangxi mica environmental incident and the rebound in lithium prices have accelerated the conversion of lithium ore into lithium salt, promoting the prevalence of contract processing models. But as lithium prices fell below 90000 yuan/ton, the production of mica and recycled lithium began to decline, while the extraction of lithium from pyroxene continued to grow. This growth is benefited from the completion of technological transformation of the mica production line in Jiangxi and the adjustment of the pricing mechanism of Australian mines. Lithium salt enterprises have expanded their profit margins by using futures hedging.

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3. Short term price fluctuations and driving factors

Price trend: Although some downstream companies have increased their production schedules since mid August, lithium prices are still hovering weakly. The price of lithium carbonate has fallen below the cost line for external mining and lithium extraction, causing upstream enterprises to be reluctant to sell, resulting in a limited narrowing of the market basis. Although some spot spreads have strengthened, the overall price rebound is limited.

Inventory impact: Since early 2024, domestic lithium pyroxene inventory has marginally declined but remains at a high level. Even if downstream demand exceeds expectations, the high inventory at the mining end can still support the consumption of lithium salts for a certain period of time. Therefore, in the short term, lithium prices lack strong drivers and may exhibit a volatile situation.

4. Medium - and long-term outlook

The resonance of destocking brings opportunities: if the mining end and lithium salt end simultaneously destocking, lithium prices may experience an upward trend. However, the medium to long term rise in lithium prices still depends on breaking the cash cost line at the mining end. After further clearance of high cost mines, lithium prices may experience a stronger upward trend.

Potential market changes: The future supply-demand balance in the market will depend on changes in spodumene inventory, adjustments to mining production plans, and the pace of lithium salt demand growth. Efficient inventory management and flexible production adjustment will be the key for enterprises to cope with market fluctuations.

5. Conclusion

Although lithium prices may maintain a volatile trend in the short term, with adjustments in inventory management and changes in supply and demand balance, the market may usher in a new round of price rebound. Investors should closely monitor the inventory dynamics of the mining and lithium salt sectors, as well as the potential market opportunities they may bring.