Lithium price slide deepens as China battery giant bets on cheaper inputs

DEMAND FEARS

A 6.3 percent drop in sales of new energy cars, including fully electric cars and plug-in hybrids, in China in January, after they grew 90 percent in 2022, sparked concerns of softening growth that would crimp demand for batteries and battery materials.

“While we remain positive on the long-term outlook for lithium, the short-term outlook is less clear, with a clear acceleration in China EV sales needed to allay market fears,” Barrenjoey analysts said in a research note on Feb. 17.

Some, including lithium giant Albemarle, ascribed lower car sales to temporary weakness given the early Lunar New year. Albemarle sees China’s EV market growing 40 percent this year. But prices have continued to fall.

“Demand is still healthy, but battery and EV makers are currently destocking instead of placing new orders. The subdued spot demand therefore is weighing on sentiment and pressing down prices,” said Susan Zou, Shanghai-based vice president at consultancy Rystad Energy.

MINERS UNFAZED

The decline in lithium prices in China, the world’s biggest consumer, has hit lithium producers overseas. Shares in Albemarle and Australia’s Pilbara Minerals are both down a quarter since November, while Allkem is down about 30 percent.

However Allkem’s chief sales and marketing officer, Christian Barbier, said the price slide in China “needed to happen” and was “helpful,” and said it was exacerbated by the country’s battery makers jostling for market share.

Miners’ profitability remained very strong, he told analysts on an earnings call on Feb. 23.

“So that’s why we’re not too concerned about the overall fundamentals and the future direction of prices,” Barbier said.

S&P analysts see the average cash operating cost of lithium carbonate production at $5,000 per ton LCE and total cash cost $8,000 per ton LCE, a fraction of the prices analysts are forecasting for lithium carbonate.

“Therefore it is quite a stretch to find the bottom for lithium prices because lithium producers will remain profitable under much lower prices,” S&P Global Commodity Insights analysts said in comments to Reuters.

LITHIUM CARBONATE SINKS

The price decline has been sharp. Chinese spot prices for lithium carbonate have fallen from near an eyewatering 600,000 yuan ($86,207) a ton in mid-November to less than 400,000 yuan currently.

They are likely to drop below 300,000 yuan by the end of this year, about half the level they peaked at in November 2022, said four China-based analysts and five traders, buyers and producers.

“A lithium carbonate price of 200,000-300,000 yuan per ton is where both upstream and downstream will feel comfortable,” said Rystad’s Zou.

Even support from supply disruptions such as an investigation into illegal mining in China’s lithium is likely to prove only temporary, analysts said.

Prices for lithium raw material spodumene have hit five-month lows.

RBC Capital Markets sees spodumene prices, last at $6,000, slumping to an average of $4,500 a ton in 2024.

“The decrease in spodumene prices has been quicker than what we anticipated,” said RBC analyst Kaan Peker.