In the current predicament of oversupply and persistently low demand, the price of lithium in China has dropped below the cost line of 90,000 yuan per ton, leading some lithium salt factories to reduce production or halt operations to minimize losses.
After the lithium price fell below 90,000 yuan on July 15, the main contract 2411 of lithium carbonate futures again plumbed on July 16, hitting a new low within the year at 87,100 yuan per ton in the morning session. On July 17, it dropped by 1.59% to 86,850 yuan per ton, once again marking a new low for the year.
In the spot market, data from Shanghai Steel Union shows that in June, the price of battery-grade lithium carbonate dropped by 14.7% from 105,500 yuan per ton at the beginning of the month to 90,000 yuan per ton by the end of the month. The industrial-grade lithium carbonate also saw a decline from 102,000 yuan per ton at the beginning of the month to 87,000 yuan per ton by the end of the month, with a 14.7% decrease.
In the first quarter of 2024, the lithium price rose from 90,000 yuan per ton to 110,000 yuan per ton, but it dropped again in the second quarter. By mid-June, the lithium price fell below 100,000 yuan per ton for the first time in three years, leading to a widening of losses for lithium companies in the second quarter with no signs of industry recovery.
Looking at the average prices in June, the average price of battery-grade lithium carbonate was 97,100 yuan per ton, a decrease of 9.82% compared to the previous month, while the average price of industrial-grade lithium carbonate was 93,600 yuan per ton, a decrease of 11.04% compared to the previous month.
As of July 18, the lithium price was reported at 87,000 yuan per ton, a 70% decrease from the same period last year. In November 2022, the lithium price soared to as high as 600,000 yuan per ton.
According to a report by Caixin, the drop in lithium prices below 90,000 yuan has pierced the cost line of some lithium salt enterprises, especially lithium mica enterprises, significantly squeezing the profits of the industry chain. Lithium resources are mainly divided into liquid lithium salt lakes, solid lithium spodumene, and lithium mica, with lithium salt lakes having the lowest cost at below 50,000 yuan per ton; lithium spodumene costing not more than 80,000 yuan per ton, and lithium mica having the highest cost, generally around 110,000 yuan per ton, but can also reach as high as 200,000 yuan per ton.
An official from the Yichun City government revealed to Caixin, “When prices fall to 90,000, companies face a choice, with some opting to reduce production or even stop production. Companies without their own mines first need to reduce production but cannot completely halt operations because they need to maintain downstream customer demand. Currently, half of the lithium salt companies are reducing production, and the most affected are the upstream mining companies, where widespread production halts have already appeared.”
A lithium salt industry insider in Yichun told Economic Observer, “Because the market is so bad, we didn’t start operations this month. Manufacturers without mines can’t continue; we probably won’t start operations next month either. The employees are all on leave now, with a small number of people left in the factory for maintenance.”
According to a calculation by Business News, the current cost of extracting lithium mica to produce lithium carbonate is about 102,800 yuan per ton, and lithium prices have long since broken through the cost line for external purchase of mica lithium companies. The aforementioned individual stated, “If prices could reach 100,000 yuan per ton, we could start operations again.”
Jiangxi Yichun is known as the “Lithium Capital of Asia” and mainly exists in the form of lithium mica. According to data from the Yichun City government, Yichun’s total lithium carbonate production in 2023 was 159,000 tons, accounting for 34.5% of the total domestic lithium carbonate production.
Data from the Shanghai Nonferrous Network shows that in February of this year, the operating rate for lithium mica producing lithium carbonate in China dropped to nearly 20%, and while it has slowly recovered since then, the operating rate was still less than 50% in June this year.
Zheng Xiaoqiang, a lithium industry analyst from the New Energy Business Division of Shanghai Steel Union, told Economic Observer that the continuous decline in lithium carbonate prices recently is mainly due to the continued increase in supply and a significant decrease in demand, resulting in a substantial oversupply in the overall supply.
Another industry insider told Economic Observer reporters that the recent price drop of lithium carbonate is mainly due to poor demand, with a decline already starting in the second quarter.
At the same time, downstream new energy vehicles are embroiled in fierce competition, with growth rates significantly slowing down compared to the previous two years, leading to cost pressure transmission to the upstream and compounded by the oversupply of lithium, putting pressure on lithium prices.
According to Securities Times, analyst Li Pan from Shanghai Steel Union believes that the cumulative sales-to-inventory ratio of batteries has been declining since August 2023, and the absolute value of cumulative inventory at battery factories has decreased for two consecutive months. If destocking becomes a trend, it indicates a lackluster peak season. Overall, the long-term oversupply trend in the lithium carbonate fundamentals remains unchanged, and in the short term, it may continue a volatile trend.
Lithium, also known as the “White Petroleum”, is widely used in the new energy industry, high-end manufacturing fields, nuclear power sector, and traditional industries such as the chemical industry. Lithium carbonate is a type of basic lithium salt, categorized as industrial-grade lithium carbonate and battery-grade lithium carbonate based on their respective contents.