Price analysis of lithium carbonate in China in January 2024: gradually entering a grinding bottom period!

Price analysis of lithium carbonate in China in January 2024: gradually entering a grinding bottom period!

01

Lithium carbonate: gradually entering the grinding bottom stage

The star variety lithium carbonate, which has been around for 23 years, surprisingly remained calm in the first week of 2024, with no sharp decline or continuous rise. The overall performance was a volatile market, and the various opinions before delivery gradually disappeared with the smooth operation of delivery. As the rolling delivery came to an end, the main contract for lithium carbonate, 2407, closed at 104700 yuan/ton on January 11th, with a 6.4% increase. The divergence between futures and spot prices intensified, and the significant price increase this time was mainly due to the disturbance of Chilean salt lake news and emotional factors, with little change in fundamentals. The bustling new energy vehicle market and the lackluster spot market for lithium carbonate, as well as the high capital expenditure on lithium projects and the downward trend in lithium prices, still stem from supply side mismatches; The surplus supply and demand situation above, supported by mining costs below, has led to the gradual entry of lithium prices into a longer grinding period. This time, we will review some recent fundamentals and market conditions, and then discuss how to view the lithium market during the period of lithium price bottoming out, combined with initial delivery and mining prices.

02

Fundamental analysis

Supply:

According to SMM information, the production of battery grade lithium carbonate in December decreased by 4.07% month on month by 26816 tons, while the production of industrial grade lithium carbonate decreased by 7.77% month on month by 13962 tons. In terms of imports and exports, Chile's total exports of lithium carbonate in December were 12857 tons, of which 8676 tons were exported to China, a decrease of 36.2% compared to the previous month. From the perspective of operating rate, the operating rate in December was 44%. Despite the pressure on lithium prices, it is expected that some lithium salt plants will continue to slow down in January. Although the production has slowed down slightly compared to the previous month, the smelting capacity continues to increase, and it is expected that the supply side will remain loose. In terms of inventory structure, the weekly accumulated inventory was 3112 tons, of which 41340 tons from the smelter increased by 2.59% month on month, 14098 tons from downstream increased by 3.65% month on month, and 14528 tons from other inventories increased by 12.37% month on month. The significant growth in circulation was mainly due to the increase in spot prices in futures trading, and there is a certain profit margin for traders to purchase, sell, and deliver goods. The inventory is concentrated upstream, while the downstream is still in the stage of destocking.

On a news level, according to Reuters, hundreds of people in northern Chile held a protest on January 10th, blocking public roads leading to mining operations in the southern salt flats and impeding the entry and exit of workers, supplies, and lithium. In terms of policy, the adjustment of import tariffs on lithium carbonate from 2% to 0% is also beneficial for imports. In the context of continuous decline in lithium prices, some high cost mines will reduce operating costs by reducing production, but the overall certainty of oversupply is high. Although lithium prices have plummeted within a year, there is still profit at the mining end, and clearing excess capacity is also a relatively long process.

Requirement:

According to data from the China Association of Automobile Manufacturers, the production and sales of new energy vehicles in December were 1.172 million and 1.191 million, respectively, an increase of 47.5% and 46.4% year-on-year, with a market share of 37.7%. In 2023, the overall new energy vehicle market continued to grow rapidly, with production and sales of 9.587 million and 9.495 million, respectively, an increase of 35.8% and 37.9% year-on-year, with a market share of 31.6%, 5.9 percentage points higher than the same period last year. Among them, the production and sales of new energy commercial vehicles accounted for 11.5% and 11.1% respectively, while the production and sales of new energy passenger vehicles accounted for 34.9% and 34.7% respectively. From the perspective of penetration rate, there is still significant room for new energy commercial vehicles.

In terms of the installed capacity of ternary and lithium iron phosphate batteries, in December, the installed capacity of power batteries in China was 47.9GWh, a year-on-year increase of 32.6% and a month on month increase of 6.8%. The installed capacity of ternary batteries is 16.6GWh, accounting for 34.5% of the total installed capacity, a year-on-year increase of 44.9% and a month on month increase of 5.3%; The installed capacity of lithium iron phosphate batteries was 31.3GWh, accounting for 65.3% of the total installed capacity, a year-on-year increase of 26.8% and a month on month increase of 7.5%. From January to December, the cumulative installed capacity of power batteries in China was 387.7 GWh, a year-on-year increase of 31.6%. The cumulative installed capacity of ternary batteries is 126.2 GWh, accounting for 32.6% of the total installed capacity, with a cumulative year-on-year increase of 14.3%; The cumulative installed capacity of lithium iron phosphate batteries is 261.0 GWh, accounting for 67.3% of the total installed capacity, with a year-on-year increase of 42.1%. However, from the perspective of material production scheduling, the data shows a split pattern. In December, the production of lithium iron phosphate, ternary precursors, and ternary materials was 95010 tons, 68586 tons, and 53181 tons, with a decrease of about 16%, 1.5%, and 5% compared to the previous month. It is expected that order production scheduling will remain weak in January, and the current demand for Spring Festival stocking is also not strong.

Overall, the terminal demand in 2023 was not poor, with new energy vehicles experiencing strong production and sales since September, and sales reaching new highs in the fourth quarter. But with the increase of penetration rate, the growth space of new energy vehicles has narrowed, and it is currently questionable whether their demand growth rate can maintain high-speed growth. However, extending the time dimension is still optimistic about long-term lithium demand. On the one hand, the export of new energy vehicles in overseas markets has maintained a high-speed growth, with a large overseas space; On the other hand, the development and installation of semi-solid and solid-state batteries have led to an increase in the usage of lithium bicycles. The 150 degree semi-solid state battery used by NIO ET9 has also successfully achieved a range of 1500km. With the gradual installation of semi-solid and solid state batteries, the charging and range disadvantages of new energy vehicles have been further reduced.

03

Disk analysis

The lithium carbonate contract has shifted from a Back structure to a Contango structure, and also maintains a spot structure of premium in futures trading. From the perspective of holding positions in various contracts, after entering the delivery month, the 01 contract saw a decrease in holdings. As of January 11th, 9258 pairs had been completed, with holdings dropping to 2085; After entering December, the main contract for 07 increased its holdings to 173000 lots and gradually decreased its holdings to 143000 lots. The trading heat slightly decreased, and then gradually increased its holdings to 157000 lots in January to prepare for the next wave of the market. From recent position observations, the continuous increase of long and short positions has shown an entry trend, with bearish sentiment slightly weaker than multi-party sentiment. The disturbance at the news level has provided some room for multi-party sentiment to be released, but the overall weak demand side combined with loose supply of inventory and warehouse receipts continues to increase, making it difficult for futures prices to maintain an upward trend.

04

Delivery Analysis

At present, the rolling delivery is nearing its end, and the number of deliveries and the continued increase in warehouse receipts indicate the enthusiasm of the industry to participate in delivery. As of January 11th, there were 11588 registered warehouse receipts and 9258 paired rolling deliveries. The overall delivery situation was stable and smooth. The enthusiasm for delivery is directly related to delivery profit. Simply put, delivery profit=market price - warehouse receipt cost, while warehouse receipt cost=spot price+quality premium. At present, the exchange has set a discount of 25000 yuan/ton between industrial grade lithium carbonate as a substitute delivery product and battery grade lithium carbonate as a benchmark delivery product, which reduces the willingness to sell and deliver using industrial carbon. However, the market's recent enthusiasm for industrial carbon inquiry is higher than that of electric carbon. This is mainly due to the current price difference between electrical carbon and the settlement price of 01 contract delivery, which still allows for a certain profit in processing industrial carbon into electric carbon for delivery. For customers participating in purchase and delivery, there is a high degree of uncertainty. Currently, delivery pairing is carried out through rolling delivery, which means that the seller occupies the dominant position. Although the current factory warehouse delivery is in some sense a brand delivery, most warehouse receipts are warehouse receipts. Under the premise of rolling delivery, the long buy delivery may not be able to match the factory warehouse receipt. After the rolling delivery is completed, the two parties who have not yet matched need to conduct centralized delivery on the last trading day, which is January 15th.

05

Downward shift of mining price center

According to SMM information, the average price of Australian concentrate has dropped all the way to $930 per ton, and the actual transaction price may be lower if settled through M+1. The downward trend in Australian mining prices has led to the recovery of losses in lithium salt factories. Recently, Australian lithium miner Core Lithium announced its decision to suspend mining at the Grants mine. The company stated that it will continue to process and sell existing ore inventory. As of December 31, 2023, Core Lithium's original ore inventory is equivalent to approximately 45000 tons of spodumene concentrate inventory. According to the Finniss feasibility report previously released by Core Lithium, the initial capital of the Finniss project was AUD 89 million (including the development of the Grants open-pit mine), with a total capital expenditure of AUD 38 million for the BP33 mine in the project. It is planned to be produced for the first time in 2024, with a production capacity of 1 million tons per year. Due to the significant decline in lithium prices in 2023, the company is expected to further reduce the cash costs of operating the Finniss project, When to mine in the future depends on market conditions. Under the current trend of declining lithium prices, some high cost mines are forced to reduce operating costs by suspending mining operations, reducing exploration and other non essential expenses. Some mines have adjusted their operating plans independently based on market conditions, which has caused some disturbance to supply. However, overall, there is still a significant oversupply throughout the year of 24.

06

Summary

The supply side is expected to continue to be loose, although it is expected that the operating rate of the smelting end will not be high in January and some high mining ends will reduce production, it is still difficult to conceal the pressure of overcapacity. According to SMM, the production of lithium carbonate in January is expected to drop by about 5% month on month, with 41700 tons; In terms of inventory, the overall trend of upstream accumulation and downstream destocking by the holders has not been observed, and the pre holiday stocking demand has not been from downstream accumulation; On the demand side, there is still no improvement in the production schedule of material merchants in January, which is in contrast to the booming production and sales of terminal new energy. This also indicates that downstream is still destocking and there are doubts about the future growth rate of demand. Overall, both supply and demand are weak, with increasing social inventory and warehouse receipts, combined with the benefits provided by reduced tariffs. Imports will maintain a relaxed supply situation in the future, but from the perspective of mining costs, the space below is also limited. The expectation of strong supply and weak demand makes lithium carbonate not have the conditions for long-term upward growth, and it is expected to operate weakly in the range of [9000010000] in the future