China's lithium carbonate market has experienced significant volatility in the past two weeks, with lithium prices shifting notably lower. The core drivers of this decline included a concentrated sell-off of hidden lithium carbonate inventories when lithium prices were around Yuan 200,000/tonne, in addition to a regulatory crackdown on invoicing practices among traders that tightened liquidity, weakening the spot market's ability to absorb supply.
The combination of these two forces directly triggered a sharp price dive. Yet, according to Mysteel's survey, much of the earlier excess liquidity has already been absorbed by downstream buying on dips, as nearly 35,000 tonnes of lithium carbonate changed hands in the spot market over the past two weeks.
Looking ahead, the market's focus is gradually shifting from "supply-side shocks" to "demand-side validation".
Based on early sample surveys and cross-checks with the industry chain, end-user demand is expected to remain strong in June-July. Production schedules for lithium iron phosphate (LFP) and battery cells in June are projected to increase by 3-4% month-on-month compared with May, a positive signal that should provide a tangible floor for lithium carbonate prices.
At the same time, supply-side constraints remain rigid. Although refineries' lithium ore inventories have been replenished to some extent recently, this largely reflects a transfer of stocks from traders. Total domestic lithium ore inventories remain at historically low levels. Constrained by tight ore availability, domestic lithium carbonate output in June will be significantly limited. Mysteel expects the turning point for spot lithium ore supply will not appear until early July.
Taking both supply and demand into account, China's lithium carbonate balance sheet is expected to remain in a drawdown of nearly 10,000 tonnes in June. The market is now firmly supported by tight raw material ore supply with strengthening basis and resilient downstream demand, with persistent pressure from ample lithium carbonate inventory that still needs time to be digested. In this environment, lithium carbonate spot prices are expected to find strong support near the cost line based on outsourced lithium ore, with limited downside risk for further price breaks.
Key factors to watch going forward include June demand and production scheduling, as well as the progress of the second environmental impact assessment for CATL's Jianxiawo mine.
Written by Aggie Hu, huchenying@mysteel.com
