China's lithium carbonate market outlook diverge

China's lithium carbonate outlooks have diverged, with some expecting a recovery in demand, following recent incentive measures, while others believe high inventory could weigh on market fundamentals.

Optimistic market sources said March 7 that they expect sales of new energy vehicles (NEV) to rise continuously, boosted by the stimulus measures in China.

China's lithium carbonate prices might start to bottom out in the near term, as the downstream demand is expected to recover, along with the incentive measures successively released by the central and local governments, some sources said.

However, there were others also who expected prices to continue the downtrend in light of the mounting cathode materials and battery inventories.

Platts, part of S&P Global Commodity Insights, assessed battery-grade lithium carbonate at Yuan 345,000/mt on March 7 on a DDP China basis, down Yuan 4,000/mt on the day and Yuan 29,000/mt on the week. The price has fallen Yuan 165,000/mt, or 32% since the start of this year, due to weak downstream demand and mounting inventories.

Downstream consumers haven't been operating at full capacity since the start of the year and would rather hold off on buying when the prices are on the downtrend in view of sufficient inventory levels, sources shared.

Stimulus measures

The people's government of Hubei province joined hands with Dongfeng group to give subsidies to the vehicles registered in the province before March 31. This has drawn widespread attention across the country, as the subsidy can be up to Yuan 90,000/unit for some specific models, the highest among other Chinese provinces and cities.

"Dongfeng vehicles are fully booked as of now since the number of vehicles is limited," said a local consumer, adding that the subsidy will be paid out within two weeks to a month after paying in advance.

More than fifteen provinces and cities in China have released stimulus measures to boost the sales of vehicles, in particular new energy vehicles, since the start of this year.

These incentive measures will push domestic NEV sales up to some extent amid the country's efforts to boost domestic demand, industry sources said.

Meanwhile, vehicle producers successively cut their sales prices to increase their market share and boost sales, as the continuous decline in the prices of lithium chemicals widened the profit margins for downstream consumers.

China's retail sales of new energy passenger cars reached 438,000 units in February 2023, up 59% year on year and 32% month on month, according to the data released by China Passenger Car Association or CPCA.

Those lithium carbonate producers relying on purchasing raw materials externally are on the verge of a break-even and might be forced to reduce production if the prices continue to go down sources said. This will lower the supply to some extent, they added.

High inventory

Inventory levels in the market remained sufficient due to tepid downstream demand from precursor and cathode makers.

A Chinese analyst estimated the inventory levels for lithium carbonate in China at 40,000 mt as of Jan. 31, a historic high. This level is equivalent to two months' worth of backlog.

Some cathode materials producers are eying lower lithium carbonate prices in the longer term in view of increasing supply and decreasing cost sources said.

There were market discussions that CALB -- one of China's leading power and storage battery suppliers -- faced a shortage of orders, with its loading volume of power battery hitting 0.79 GWh in January 2023, down 34% from a year earlier.