10 Jul 2023 | 06:59 UTC

TRADE REVIEW: Increased supply to limit lithium price growth after Q2 rebound

Highlights

Lithium prices rebound in Q2 after bottoming out

Shift toward LFP batteries support lithium carbonate

Demand improvements, supply ramp-ups to decide Q3 prices

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This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper, alumina, cobalt, lithium, and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

Poll question - Will battery-grade lithium carbonate DDP China price average Yuan 300,000/mt for 2023? YES/NO/Others

Market participants expect Asian lithium prices to remain rangebound moving into the second half of 2023 after rebounding in the second quarter from a six-month drop. The lithium supply glut could soon reach a tipping point to overshadow the current growth in downstream consumer demand as well as a pickup in trading activities.

Chinese lithium prices bottom out

Lithium prices in Asia extended their downtrend into the first half of Q2 amid prolonged low downstream cathode and battery operating rates. Chinese lithium carbonate and hydroxide prices bottomed out at Yuan 152,000/mt and Yuan 200,000/mt DDP China on April 17 and April 18, respectively. Lithium prices gradually climbed up on higher offers and more inquiries toward end-May.

Lanke, a salt lake lithium producer, issued a 3,000-mt auction for industrial-grade lithium carbonate post the Labor Day holidays in China. It sold the cargo at Yuan 300,000/mt May 29.

This drove sellers to subsequently lift spot offers, supporting lithium prices. Jiangxi's 414 mine had also concluded a 2.2% lepidolite concentrate auction at Yuan 8,666/mt, which corresponded to approximately Yuan 300,000/mt cost of producing battery-grade lithium carbonate.

Heightened trader activity throughout the same period was also observed with traders taking positions amid the bullish market conditions. Lithium carbonate and hydroxide prices continued to extend gains in May, with lithium carbonate doubling and hydroxide increasing as much as 60% from their respective lows in April.

However, after reaching a high of Yuan 320,000/mt for lithium carbonate and Yuan 315,000/mt for lithium hydroxide June 7, lithium prices remained rangebound as the pace of downstream demand recovery fell short of expectations. Drops were limited by production costs as refiners moved on to digest higher-priced raw material inventories.

Prices showed a slight downtrend toward the end of June with a stronger downstream pushback, on the back of sufficient inventory and consumers procuring only out of necessity.

LFP batteries to dominate EV, ESS markets

China's sales of electric vehicles had grown steadily throughout Q2. According to the China Association of Automobile Manufacturers (CAAM), EV sales in May rose 12.6% month on month and 60.2% year on year, marking the highest level this year so far. The Chinese government had announced that NEV purchase tax will be exempted for 2024-25, which is expected to boost sales further.

Zooming into battery preferences, the market remained dominated by lithium iron phosphate (LFP) batteries. The domestic China market production share of nickel-rich nickel manganese cobalt (NMC) batteries had fallen to 33.1%, while LFP occupied 66.9% in May, according to data from CAAM.

The shift came about as more importance was placed on global energy sustainability, paving the way for energy storage systems (ESS). The majority of ESS utilizes LFP batteries, which is a cheaper alternative to NMC batteries as energy density is not the priority for ESS compared with EVs.

LFP batteries mainly use lithium carbonate as the cathode material, and the shift in market preferences had also widened the parity between carbonate and hydroxide.

Platts assessed Chinese lithium carbonate and lithium hydroxide at Yuan 294,000/mt DDP China and Yuan 284,000/mt DDP China June 30, down 38.1% and 38.4%, respectively, year on year, according to data from, S&P Global Commodity Insights.

Meanwhile, NMC batteries remained dominant in the overseas market, which contributed to lithium hydroxide trading at a premium over carbonate in the international market.

Platts assessed the battery-grade lithium carbonate and hydroxide prices at $43,800/mt CIF North Asia and $47,000/mt CIF North Asia June 30, down 37.4% and 36.5%, respectively, year on year, according to S&P Global data.

Platts has been tracking the number of lithium heards, or pricing points, as an indication of market liquidity. Liquidity averaged 370 heards in Q2, up from an average of 360 heards in Q1, as market participants acclimatized to the changes in Q1.

Lithium ore supply to ramp up in H2

Moving upstream, fluctuations observed in the spot lithium chemicals market have weighed on spodumene prices.

Lithium converters in China showed resistance in procuring raw materials at higher cost margins due to the rapid drop in lithium carbonate prices since end-2022 to the start of Q2. Spodumene prices fell to $3,600/mt June 30 from $4,300/mt, or 16% since the start of Q2.

Many lithium converters in China said they are sitting on at least one-two months of inventory, which meant that there was no rush for them to procure spodumene.

Unless downstream battery demand increases, cost concerns will continue to pressure converters, sources said.

On the supply front, new and expansion projects in China, Brazil, Zimbabwe and other regions are also providing alternative supplies, further reducing reliance on Australian ores. Five greenfield projects had started production this year after delays in 2022.

The ongoing projects are estimated to bring about 4.8 million mt of spodumene capacity, and this number is expected to increase further to 10 million mt by the end of 2024.

"The commissioning of greenfield lithium projects will help to balance the market and moderate prices over the next two years," said Alice Yu, senior analyst from S&P Global Metals and Mining Research.

Looking ahead, the lithium price direction hinges on the balance between demand improvements and supply ramp-ups.

"The battery downstream will keep the price increase in check to limit rises in the cost of batteries and PEVs and avoid hurting sales, given macroeconomic headwinds," Alice added.

Editor:

Anthony Poole