Lithium carbonate to plunge by over 30% in China in 2024
Lithium carbonate prices in China, the world's largest consumer and producer of the chemical used in batteries, are poised to plummet by more than 30 per cent in 2024, according to analysts. This anticipated drop comes as the supply of lithium carbonate from major producers continues to outstrip the increasing demand from battery manufacturers.
The price of lithium carbonate in China has already experienced a significant decline, plummeting by 77 per cent this year alone. This sharp decline can be attributed to Beijing's reduction of subsidies for electric vehicles (EVs) at the beginning of the year. The subsidy cut has had a ripple effect on lithium ore prices and has negatively impacted the profit margins of global mining companies.
As of this week, the spot price of lithium carbonate hit a more than two-year low at 115,500 yuan ($16,185.54) per metric ton. Analysts in China anticipate that this price could drop further to as low as 80,000 yuan next year, driven by the continuing increase in global supply. One of these analysts even expects the price to reach 100,000 yuan by the end of this year.
This trend is not limited to China, as prices outside the country have followed a similar trajectory. Benchmark lithium carbonate prices for China, Japan, and South Korea stood at $18.50 per kg on Thursday, marking a staggering 77 per cent drop from their peak of $81 per kg in November 2022.
The most-traded January contract on the Guangzhou Futures Exchange reached a new low of 106,200 yuan per ton on Thursday, which is less than half of its listing price when trading commenced in July.
While this price plunge is expected to impact high-cost lithium producers, it could offer some relief to the decelerating EV sector. China, which accounts for approximately 70 per cent of the world's batteries and over half of its EVs, is forecasted to witness a slower growth rate in domestic EV sales, projected at 25 per cent with an estimated 9.44 million units sold next year. This represents a notable slowdown compared to the annual growth rates of 31 per cent in 2023 and 89 per cent in 2022, as reported by CITIC Futures.
Furthermore, the energy storage sector, which is the second-largest lithium consumer, is also anticipated to experience a decline in growth due to weakening domestic and overseas demand.
The global supply of lithium is expected to surge by 40 per cent in 2024, according to UBS forecasts, reaching more than 1.4 million tons of lithium carbonate equivalent. Top producers Australia and Latin America are set to increase their output by 22 per cent and 29 per cent, respectively, while African production is expected to double, propelled by projects in Zimbabwe.
China's production is also expected to jump by 40 per cent in the next two years, driven by a significant project by CATL in southern Jiangxi province.
As a result of this supply surge, CITIC Futures predicts a global lithium surplus of 12 per cent, a significant increase from the 4 per cent surplus experienced this year. The company anticipates that Chinese lithium carbonate prices could drop to as low as 80,000 yuan per ton in 2024, with an average around 100,000 yuan, equivalent to production costs in Jiangxi, China's most prominent producing region for the chemical.
Producers in Jiangxi, who primarily rely on locally mined lepidolite (a hard rock lithium ore), have costs ranging from 80,000 to 120,000 yuan per ton. In contrast, producers relying on external ore supply may see their costs rise to 200,000 yuan per ton, according to analysts.
While some major producers in Jiangxi have already scaled back production since September, producers in other regions, such as the lakes of northwestern Qinghai province, with estimated costs at about 50,000 yuan per ton, continue to expand their operations.
For major producers using spodumene, another type of ore imported from their own mines, analysts estimate costs to be around 70,000 yuan per tonne.
The future of the lithium market appears to be increasingly influenced by a delicate balance between supply and demand, with significant implications for the EV industry and battery manufacturers worldwide.
Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.