18 Apr, 2023
Chinese lithium prices slump 74% from all-time high in Q4 2022
By Avery Chen
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Salt lakes in China's northwestern Qinghai province host lithium-rich brines, which have lower extraction costs than spodumene. |
China's lithium carbonate spot prices have fallen 74.2% from a record high in late 2022 as battery-makers and electric vehicle manufacturers use up warehoused chemicals amid slowing demand. Analysts already see early indicators of the price bottoming out.
The price of lithium carbonate in China, on a delivered duty paid basis, fell to 152,000 yuan per metric ton on April 17 from a record high of 590,000 yuan/t on Nov. 11, 2022, according to the Platts assessment from S&P Global Commodity Insights, as auto sales growth slowed after China ended decade-long EV subsidies in January 2023.
"Destocking by downstream consumers and inventory buildup at refineries are accentuating the price drop stemmed from weakness in EV demand," Alice Yu, a Commodity Insights senior analyst, said in an email.
Bubble bursts amid destocking pressure
Shipments of EV batteries reached 465.5 GWh in 2022, far higher than the installation of 294.6 GWh, research agency EVtank said in March 27 report. As a result, EV battery inventories in China hit a record high of 164.8 GWh at the end of 2022, ratcheting up pressure on the industry to reduce supplies of lithium on hand in 2023, EVtank said.
The first quarter is usually a quiet time for battery and lithium demand, and market participants have adopted a wait-and-see approach from the end of 2022 due to the phaseout of EV subsidies, Li Liangbin, chairman of Ganfeng Lithium Group Co. Ltd., told investors April 10.
The price decline may also indicate that lithium's bubble is bursting, industry insiders said. EV-makers may have had an overly optimistic outlook for sales, buying more lithium to produce more batteries than they can sell. Lithium supply growth was unable to meet the inflated demand due to delays in bringing new lithium projects online, and the mismatch drove prices higher, encouraged hoarding and fed speculation in the lithium market over the past two years.
New and traditional automakers were optimistic about EV sales, especially Chinese companies, Zhao Weijun, president of battery-maker Envision AESC China, said at the Yibin-Cloud Summit Forum in Sichuan province on April 16. Everyone wanted to produce millions of cars, and every battery-maker aimed to be one of the top-three producers, which led to exaggerated lithium demand, Zhao said. But it takes a long time to unlock new lithium capacity, so China's EV industry is mainly relying on products from overseas spodumene projects, which have production cycles lasting longer than a year, according to Zhao.
Now, the investment frenzy in new lithium projects has started to yield new production capacity, driving prices down, Zhao said.
Hard times for lithium processors
"The uncertainties over the timing of the demand recovery under a bearish price environment make for testing times for lithium producers," Yu wrote in a March 30 report. "In a falling price environment, producers throughout the lithium supply chain face the added pressure of cost-to-price mismatch: Lithium units are more expensive at time of purchase than when sold as refined and processed products. ... Refineries relying on spodumene purchased from the spot market are loss-making," the analyst said.
The spot lithium carbonate prices have fallen below the production cost of some leading companies. The initial investment of new brine projects built by some miners is about 160,000 yuan/t to 200,000 yuan/t, and the cost of partly or wholly owned mines outside China stays at 250,000 yuan/t to 300,000 yuan/t, Qian Yi, a lithium analyst at ICCSino said in an interview.
A lithium price
Considering lithium extraction costs of brines and mica in China, domestic lithium carbonate prices should fall between 100,000 yuan/t and 200,000 yuan/t, Ouyang said. The development of battery recycling and sodium-ion batteries will be hampered if lithium carbonate prices drop to below 100,000 yuan/t, Ouyang said.
International prices still falling
Futures prices of Chinese lithium carbonate have risen, showing a recovery in market sentiment and an early sign of bottoming out, Qian said. Lithium carbonate prices for April delivery on China's Liyang Zhonglianjin E-Commerce platform rose 16.9% day over day to 187,000 yuan/t on April 18, with deliveries for May through August increasing by more than 12% from the previous day.
The demand is still there; buyers are just waiting for the best time to call the bottom, Qian said. The analyst expects lithium prices and demand to bottom out as soon as the second half of April on hopes that the government might launch a stimulus on EV sales and that lithium carbonate exports continue to rise as domestic lithium prices trade at a deep discount.
Commodity Insights analysts expect the lithium carbonate price in Asia, on a cost, insurance and freight (CIF) basis, to decline 20.1% year over year to $40,249/t in 2023, and price risks are on the downside. Yu expects CIF Asia lithium prices to recover in 2024 as the market moves back into deficit.