Lithium Prices Drop Below 80,000 Yuan

• News
• 2024-07-23

Since August 2nd, the lithium carbonate market may be facing another shift. Both the main futures and spot prices of lithium carbonate have broken below the 80,000 yuan mark. Prior to this, Albemarle Corporation, the world's largest lithium miner, had announced that it would immediately take asset protection actions for its Kemerton lithium processing plant in Australia, urgently halting part of the production lines.

Is the lithium giant finally unable to withstand the pressure? Is the market adjustment in place, and is a turning point about to arrive?

Is the decline in lithium prices braking? Albemarle can't hold on anymore.

For a long time, Australian lithium ore has been a hot commodity in the global lithium carbonate market due to its high quality and low mining costs, and it has also been the largest source of overseas lithium mines for China. In 2023, Australia's lithium ore production (equivalent to lithium carbonate) accounted for more than 46% of the global market. By the end of 2023, Australia had a total of 4.2 million tons of lithium concentrate production capacity.

Advertisement

Among them, Albemarle Corporation, as the world's largest lithium miner, holds the vast majority of control over major Australian lithium mines such as Talison, Greenbushes, and Wodgina. Of course, Chinese lithium giants such as Tianqi Lithium and Ganfeng Lithium have also participated in shares and become the largest contract sellers.

However, since a major adjustment in the lithium carbonate market at the end of 2022, international lithium carbonate prices have fallen from a high of 600,000 yuan/ton to 120,000 yuan/ton at the beginning of this year. The once precious commodity has suddenly become a "burden" for companies.

Entering April, lithium carbonate prices once again broke the expectations of most industry experts - falling to around 110,000 yuan/ton in April, breaking the 100,000 yuan mark in June, falling below 90,000 yuan/ton in July, and just entering August, both lithium carbonate futures and spot prices have broken below the 80,000 yuan/ton mark.

This kind of decline is not only unbearable for domestic companies, but even Albemarle feels the pressure. According to Albemarle Corporation's financial reports, its net sales in the second quarter were only 1.4 billion US dollars, a decrease of nearly 40% compared to the same period last year; the net loss reached 188 million US dollars.

So Albemarle finally couldn't hold on and had to step on a hard "brake" for the decline in lithium prices.

On July 31st, Albemarle Corporation announced that it would immediately take asset protection actions for its Kemerton lithium processing plant in Australia, including halting the construction activities of the No. 3 production line and suspending a series of measures for the No. 2 production line.It is reported that the factory is a facility for Albemarle Corporation in the United States to produce battery-grade lithium hydroxide for electric vehicles and other products. Albemarle Corporation will also idle a lithium processing production line at the factory, concentrating production on a single line. (Lithium hydroxide is also a key material for lithium batteries, but the process route is different from lithium carbonate, and it is generally used more in the production of high-nickel ternary lithium batteries. When calculating total output, it is usually converted to lithium carbonate equivalent.)

"We must be able to adjust the production pace according to market needs," said Kent Masters, CEO of Albemarle Corporation. The number of employees at the Kemerton factory will be reduced by 40%, and due to the idling of the production line, the factory's production capacity will be reduced from the current 50,000 tons to 25,000 tons.

Global supply deceleration! Is the cycle adjustment in place?

So far, affected by the continuous decline in lithium carbonate prices, the actual global lithium ore production has been significantly lower than previous expectations. Major mining companies have slowed down production and reduced output, which has become a common phenomenon.

"Albemarle's quarterly losses and partial production suspensions indicate that the cyclical adjustment of the lithium mining industry may be approaching the bottom."

Industry experts have stated that compared to the lithium battery industry, upstream lithium mining investment and capacity adjustment have obvious lag. The previous expansion of the lithium battery industry once led to high lithium carbonate prices from 2021 to 2022. A large amount of investment poured into lithium mining. However, from investment to construction, and then to actual mass production, it often takes two to three years, or even longer. This leads to a situation where when the growth rate of the lithium battery industry is not as expected, or even begins to adjust, lithium mining capacity is still increasing rapidly.

Even if market oversupply has been identified, for most lithium mining companies, it is already a "no turning back" situation. They can only, on the one hand, suspend high-cost mining areas and projects, and on the other hand, increase the output of low-cost mining areas. Only in this way can they ensure the final profit. This "quick flow" strategy of mining companies not only further increases supply but also leads to price trampling.

It is clear that the electric vehicles that were ahead have already braked, but the trucks filled with lithium carbonate behind them simply cannot stop, and "rear-end accidents" are inevitable. It may even be necessary to wait for lithium carbonate prices to continue to fall, far below the cost baseline, before the entire market can slowly recover.

Now, prices below 80,000 yuan/ton have also approached the cash cost of 75,600 yuan/ton for more than 90% of lithium carbonate companies. Albemarle's announcement to suspend part of the production line just shows that even international giants like Albemarle can no longer bear it.

In this regard, industry insiders believe that there are signs that the market may be approaching the bottom. At the beginning of the year, people generally expected that this year's lithium concentrate in Australia, converted to lithium carbonate equivalent, would reach 430,000 tons, a year-on-year increase of 25%. However, the actual output is estimated to be only flat in 2023, or even slightly reduced. This adjustment in output will help further balance market prices.Is lithium price bottoming out at 80,000 yuan with demand exceeding expectations?

From the perspective of demand, the downstream market's appetite for lithium batteries has not waned, with demand in both new energy vehicles and energy storage sectors showing an upward trend.

According to data from the China Passenger Car Association, from July 1st to 28th, the retail sales of new energy passenger cars reached 722,000 units, a 31% increase compared to the same period last year. Additionally, figures from the National Energy Administration indicate that as of the first half of this year, the cumulative installed capacity of new-type energy storage across the country has reached 44.44 million kilowatts, a growth of over 40% compared to the end of 2023. Shipments of energy storage lithium batteries have surpassed those of power lithium batteries for the first time.

"Overall, there hasn't been a significant change on the demand side, and the overall performance has been relatively strong," said Mo Ke, founder of True Lithium Research, in an interview with the Securities Daily, suggesting that lithium carbonate prices may rebound in the second half of the year.

Current orders and production schedules obtained by True Lithium New Media from battery manufacturers show that in August, the total production of batteries from major battery factories is increasing, with an expected output of over 94GWh, not only not decreasing but actually increasing by nearly 3% month-on-month.

Furthermore, the impact of the United States and the European Union imposing additional tariffs on Chinese new energy vehicles and lithium battery industries has not been as significant as imagined. On the contrary, it has stimulated the accelerated export of related Chinese enterprises. Public data shows that from January to June this year, China exported 73.7GWh of power and other batteries, a year-on-year increase of 18.6%. Among them, the export of power-type lithium iron phosphate batteries in the first half of the year increased by 46.7% year-on-year.

Recently, it has been reported that the United States will delay the imposition of high tariffs on Chinese electric vehicles and other products. The aforementioned measures, originally scheduled to take effect on August 1st, will be postponed by at least two weeks. The internal debate within the European Union on whether to impose additional tariffs on Chinese new energy vehicles is also highly contentious.

Moreover, our policies continue to be effective. On July 25th, with the introduction of the "new round of subsidies for trade-ins," new energy passenger cars, new energy trucks, new energy buses, and power batteries will receive a total of nearly 150 billion yuan in replacement subsidies.

The China Power Battery Industry Innovation Alliance estimates that in 2024, the annual demand for power batteries in China will be 527GWh, a year-on-year increase of approximately 35.9%.

Therefore, the current lithium price breaking below the 80,000 yuan/ton threshold is more of a "correction overshoot." With the "production restriction to maintain price" by lithium mining giants and the increase in production and inventory preparation by lithium battery enterprises, the accelerated clearing on the supply side and the continuous efforts on the demand side have laid the foundation for the stabilization and rebound of lithium carbonate prices in the second half of the year.