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The most-traded GFEX lithium carbonate contract has been rallying since the second half of June, rising nearly 13% in the latest uptrend thanks to bullish sentiment on the macro front as well as reducing warrants. While the lithium carbonate futures price hit Yuan 68,000/tonne once, the follow-up trend seems ambiguous in the face of deepening oversupply, moderate demand, and digesting bullish sentiment.
Sources: Mysteel, GFEX
On the supply side, China's lithium carbonate production read approximately 74,000 tonnes in June, up 5.7% month on month (MoM), according to Mysteel's survey. The increase was primarily contributed by newly restarted refineries ramping up the production, with the rest following their production guidance.
Specially, some refineries relying on outsourced feedstock resumed the production around the month-end on stabilizing ore prices. However, the recycling sector performed poorly on meagre profits, partly offsetting the production growth.
China's lithium carbonate production is estimated to jump 7.1% MoM at around 79,300 tonnes in July.
From the perspective of raw materials, the spodumene-based production lines report a further increase in production scheduling with the gradual arrivals of imported lithium ore, in addition to finishing overhaul. The tollers in the northern part of China are projected to raise the production as well after the lithium ore traders complete their hedging activities driven by the recent lithium price hike.
For lepidolite-based production lines, only the refineries with in-house mines could maintain the production thanks to successful cost control when the lithium carbonate prices are relatively low. Nevertheless, the recent price rally is projected to encourage the producers to further raise the production above the original scheduling.
The lithium carbonate produced with recycled materials has been contracting since the beginning of 2025 primarily due to steadily falling lithium prices, which squeezed the profits of recyclers. The lithium carbonate prices embarking on the uptrend is likely to slightly boost the production.
For lithium brine projects, the production has been stable thanks to low cost, and the production is expected to slightly increase seasonally.
Source: Mysteel
In June, Chile exported around 10,226 tonnes lithium carbonate to China, up 5.91% MoM and down 41.23% year on year (YoY), according to Chile's customs office. The shipment was relatively low compared with last year due to narrowing export profits as well as high spots inventory in China.
On the demand end, China's LFP production stood at 288,500 tonnes in June, flat from the previous month. Though the power battery manufacturers prioritized destocking in June, which slowed the demand to some extent, the energy storage battery sector was robust as the cell factories seized the tariff grace period to ramp up the exports.
It is expected that China's LFP production will increase to around 294,500 tonnes in July fueled by the exciting orders for Xiaomi Auto's new model, sustaining the demand from the power battery sector. In addition, the energy storage sector maintains momentum, and Mysteel has observed a palpable increase in the production scheduling.
Source: Mysteel
Taken together, China's lithium carbonate market is likely to see an oversupply of approximately 4,895 tonnes on rising supply in July, despite moderate demand in the traditional seasonal low.
Source: Mysteel
At present, the warrants have kept falling while lithium carbonate futures price rebounded partly because the downstream cathode factories took stocks from GFEX-approved warehouses intensively. But the suppliers are expected to gradually register more warrants as they actively opened hedging positions during the lithium price rally.
The traders, on the other hand, are expected to deliver to GFEX-approved warehouses when the spread between spot and futures price is enough to cover the delivery cost.
On the spot market, the cathode factories rarely purchased on the spot market as they were generally bearish on future lithium price.
In conclusion, while the lithium carbonate oversupply is more than likely to deepen in July, the market players' trading logic is basically the rising cost fueled by the bullish sentiment. And the lithium prices are expected to remain resilient until the influences from the macro front fade ultimately.
In the medium term, the end-user demand has shown resilience despite the traditional off-season, with monthly production scheduling significantly stronger than previously expected. So far, there are no clear indicators pointing to further demand contraction.
However, on the supply side, the additional lithium carbonate production boosted by hedging activity on rising futures price has also been substantial. The market is expected to maintain a monthly surplus in the coming months.
Going forward, close attention must be paid to developments in lithium mining, particularly whether any mines will reduce or halt production for a reason. Additionally, reviewing supply-side trends in the first half of the year reveals that many planned production capacities failed to come online as scheduled. As a result, the projected annual surplus may need to be revised downward, and the cost line is expected to shift upward compared to earlier estimates.
Written by Aggie Hu, huchenying@mysteel.com
