- Prices have collapsed by over two-thirds in just five months
- Prospects are brightening for battery storage and EV sales
According to Bloomberg article published on April 17, 2023, the sharp decline in China’s lithium market is showing signs of bottoming out.
Smaller producers are looking to stem losses after the price of the key battery material collapsed by over two-thirds in just five months. Thin stockpiles and improved prospects for battery storage and electric vehicle sales suggest that demand may be about to recover.
For firms without their own mines or long-term supply deals, prices have already fallen to the cost of production, according to Huaan Securities Co. “Inventory in the supply chain is already at a low level, and with the recovery of downstream demand in the second quarter, lithium prices could stop falling and stabilize,” the brokerage said in a note.
The lithium roller coaster captures a two-year rally that lifted the market to a record 597,500 yuan ($86,910) a ton in November as EV demand in China boomed, before a rapid retreat that saw prices hit 187,500 yuan on Monday, according to data from Asian Metal Inc. The price of the lithium-bearing rock, spodumene, mined in Australia has fallen 16% from last year’s peak, according to Benchmark Mineral Intelligence.
The declines came as companies across the battery supply chain avoided high prices by drawing on inventory rather than buying afresh, while the end to Chinese subsidies on EVs and a price war among automakers curtailed demand. Although the slump has offered some relief to downstream customers, the mineral is still over four times more expensive than the low hit in 2020.
Brighter Outlook
Benchmark Minerals, an industry consultant based in London, said in a report earlier this month that the “price correction in China is not emblematic of the entire market.” It cited the high cost of mining, the need to rebuild inventories, and a brighter outlook for battery storage and EV sales as the energy transition progresses.
Moreover, some Chinese producers in the hub of Yichun in Jiangxi province have already cut processing rates to reduce losses, local media reported. “I don’t think that the market has anything to worry about in the sense that prices are not going to crash below the cost of production in Jiangxi,” Benchmark analyst Cameron Perks said in an email.
“We are also watching inventory levels across the supply chain,” he said. “That, plus an expectation for stronger demand in 2H means that prices will move higher again very soon.”
More bearish takes on the market have come in recent weeks from Goldman Sachs Group Inc. and Citigroup Inc., which both cut their price outlooks. Set against that, the bid by top US producer Albemarle Corp. for Australian miner Liontown Resources Ltd. would seem to signal optimism for prices over the longer term.
