Lithium ore outlook: inventory depletion, processing fee battles, and Zimbabwean bottleneck

I. Supply-Demand Balance

Unit: Kt

On the supply side, import volumes in June are forecast values based on shipment data, while domestic ore production remains broadly stable with gradual capacity expansion.

On the demand side, lithium carbonate output from spodumene feedstock continues to grow, while lithium hydroxide production remains stable. From a balance-sheet perspective, destocking persists in June. Overall supply and demand continue to show destocking.

II. Spot Inventories

Source: Mysteel

As of June 25, lithium ore spot inventories held by traders stood at 98,000 tonnes, down 9,000 tonnes week-on-week. Trader inventories continue to show a sustained destocking trend, which is broadly consistent with traders' on-the-ground experience. After most traders had cleared their routine stockpiles, many sought to procure from upstream mines, but given the absolute price levels remained low, the shipments slowed, resulting in persistent difficulties in securing spot materials.

As of June 25, port lithium ore inventories totaled 201,000 tonnes, up 32,000 tonnes WoW. Port stocks are composed primarily of trader and lithium salt producer holdings. While trader inventories have been declining, producers, most of whom operate under long-term off-take agreements, have continued to receive steady supply replenishment even in the lower price range, leading to modest inventory accumulation at lithium salt plants. This represents a marginal change that has somewhat eased previous perceptions of tightness on the ore side.

III. Forward-Looking Indicator for Lithium Ore Supply-Demand -Processing Fees

Currently, the average lithium ore processing fee (the basis for lithium ore procurement) for lithium salt producers is roughly Yuan 17,000/tonne for Australian ore and Yuan 18,000/tonne for African ore.

The lithium ore processing fee is now the key point of negotiation between lithium salt producers and mines and traders, and also serves as the primary source for safeguarding reasonable profit margins for producers. This processing fee effectively encapsulates a composite price that references spot transaction prices, future arrival fluctuations, and downstream end-user demand expectations.

In essence, the processing fee mainly reflects the negotiation dynamics over lithium salt producers' ore inventories. When producers hold ample stocks, traders find it difficult to gain an advantage in pricing. Only under significant shifts in supply expectations, such as the overseas shipment constraints seen this year, have some lithium salt producers, concerned about supply disruptions, been forced to accept lower processing fee terms.

Looking back, although trader inventories remain low, most lithium salt producers are adequately stocked. Combined with rising prices for auxiliary processing materials, the processing fee has recently found it difficult to break lower.

IV. Current Core Contradiction-Zimbabwean Shipments

With supply and shipment schedules from other regions being relatively transparent, the most critical point of contention now is whether lithium ore shipments from Zimbabwe will arrive as expected.

Zimbabwe relaxed its export ban in late May, and arrivals in July primarily correspond to shipments loaded in Zimbabwe during May. According to Mysteel latest survey data, July arrivals are expected to recover to around 50-60% of pre-ban levels, with a more substantial recovery likely reflected in August arrival data.

Based on these data, Zimbabwean supply remains relatively tight in July. However, it will see supplementary Australian bulk shipments arriving in July, keeping the lithium ore spot market in a state of tight balance.

 
Note: The above data represent only current survey findings and are forward-looking projections. Actual arrival data should refer to China Customs statistics.

Summary:

In the short term, lithium ore supply0demand continues to destock, and the overall tight structure is unlikely to change. However, with subsequent Australian shipment replenishment and Zimbabwean ore arrivals expected to be supplemented around August, the theoretical period of peak ore tightness has already passed.

On the spot front, given that lithium salt producers hold ample ore inventories and have secured forward long-term off-take volumes, the negotiation standoff between lithium ore traders and producers over spot concentrate processing fees will continue to intensify. Some smaller and medium-sized traders, under the shipment pressure, may resort to distressed selling at lower prices, while larger traders, with declining spot inventories, are showing stronger willingness to hold firm on prices.

In the long term, driven by sustained downstream demand growth, particularly with new capacity coming online in Q3 this year, demand for lithium carbonate remains robust. Spodumene feedstock, due to its cost efficiency, is capturing an increasing share of the lithium carbonate market. At the same time, African regions are placing significantly greater emphasis on resource control. For instance, Zimbabwe's export ban on lithium concentrates, scheduled for 2027, has not been extended. Relevant producers must therefore seize the chance to accelerate local construction and improve supply-chain efficiency, while those failing to meet construction timelines need to consider securing feedstock for 2027 well in advance. Advanced stockpiling by major producers will further exacerbate tightness in the lithium ore spot market.

In conclusion, lithium ore is outperforming lithium salts in terms of market tightness. Under the current price environment, mastering access to high-quality lithium ore resources has become an essential corporate profitability challenge that all industry participants must learn to navigate.

Edited by Cassie Li, lixiangying@mysteel.com