Since July 2026, China's lithium carbonate market has presented a rare paradox, where destocking coincided with falling prices. Concentrated maintenance cuts and declining shipments from Chile have driven sustained inventory drawdowns, yet futures prices have trended lower, with the decline accelerating in late July on consumption tax fears and only pausing temporarily in August on production cut announcements. Yet, the lithium carbonate prices were markedly lower from early July, reflecting a market where good news fails to support prices while bad news tends to be amplified.
At this juncture, domestic maintenance cuts and rising downstream production schedules are reinforcing the destocking trend. However, with the battery consumption tax imminent, port lithium ore inventories recovering, and overseas supply additions accelerating, the pricing debate centers on whether near-term destocking or medium-term supply ramp-up will dominate.
Source: Mysteel
Supply
Mysteel's survey showed that China's lithium carbonate production in July 2026 was 101,200 tonnes, down 4.0% month-on-month and below early-month expectations, due to feedstock shortages and plant maintenance.
Specially, the concentrated maintenance-triggered production cuts from July to September have had a notable impact, with July reductions largely realized. Salt lake output increased with rising temperatures, but the additions contributed only a small share. In Jiangxi, only integrated lepidolite producers maintained high operating rates, with most smaller plants either idled or running at reduced levels. Recyclers' operating rates recovered modestly as scrap prices stabilized.
The August production is scheduled at 108,900 tonnes, up 7.6% month-on-month, driven by improved spodumene arrivals from Africa, planned restarts at producers previously idled due to ore shortages, and seasonal peak output from salt lakes. However, the actual pace of feedstock arrivals and maintenance restarts will determine whether these schedules are realized. Nevertheless, recent futures price rebounds on production cuts have faded as the market has already priced in output recovery after maintenance.
Imports
Chile's lithium salt exports fell month-on-month in July. Lithium sulfate exports to China plunged 48.4% to 7,700 tonnes, a year-to-date low, while lithium carbonate exports to China stood at 15,100 tonnes, remaining in the 14,000-15,000-tonne range for three consecutive months, well below the 20,000-23,000-tonne peak seen in March-April 2026.
Cumulative Chile's lithium salt exports totaled 237,600 tonnes LCE over January-July, rising 32.5% YoY, of which 177,700 tonnes LCE were shipped to China, an annual increase of 42.9% YoY.
Overall, Chile's shipments have returned to normal levels from earlier surge, and with lithium sulfate exports dropping sharply, China's net lithium carbonate imports are estimated at 27,000-30,000 tonnes in August, moderating from the first-half peak.
Demand
China's LFP cathode production reached 531,000 tonnes in July, up 3.59% month-on-month, with leading producers maintaining stable operations. Some producers saw temporary output reductions such as line upgrades. The January-July cumulative LFP production stood at approximately 3.268 million tonnes.
On August 1, leading LFP cathode plants issued price hike notices by Yuan 2,000/tonne, with high-end products in tight supply and low-end capacity seeing insufficient orders. And the price hike also reflected sustained high demand from energy storage and power battery sectors.
August LFP production is projected to rise to 558,600 tonnes, up 5.2% month-on-month, with capacity releases in Shandong, Sichuan, and other regions expected to continue. The top-tier plants are increasingly seeking tolling arrangements, reflecting tight effective capacity.
Looking ahead to September-October, LFP capacity is expected to enter a rapid ramp-up phase, with production schedules likely to maintain strong growth.
Inventory
On the inventory front, cathode producers have adopted a hand-to-mouth procurement strategy amid volatile lithium prices, primarily relying on long-term and tolling contracts for feedstock, keeping inventory days low. No active restocking has been observed near Yuan 145,000/tonne, with buyers holding a "buy on strength, stay on weakness" strategy.
Supply-Demand Balance
August is expected to see a significant inventory drawdown of around 22,000 tonnes, driven by increases in both supply and demand. Domestic production is set to recover on ore arrivals from Africa and seasonal growth in salt lake output, though the actual production falling short of expectations in July may still pose a constraint. Meanwhile, China's net imports are estimated at around 28,000 tonnes.
Demand-wise, the LFP production is scheduled to rise 5.2% month-on-month, with ternary cathode schedules also increasing, lifting lithium carbonate demand by around 5% month-on-month in August. Therefore, the supply-demand gap is expected to widen further from July, accelerating the drawdown.
Nevertheless, it is important to note that July saw concentrated GFEX warrants cancellations, with warrants rebounding quickly thereafter. As of early August, total warrants had risen sharply from the mid-July low, remaining at historically high levels compared with the same period in previous years. More warrants are expected to be scheduled for August.
On the spot market, the latest inventory data shows continued destocking across all segments among converters, traders, and cathode producers, based on Mysteel's tracking. Traders' marketable inventories have also remained at low levels, with older stocks being rapidly absorbed at lower prices. With spots availability tight still, the basis for deliverable brands has continued to strengthen, narrowing traders' risk-free delivery margins.
Outlook
In the near term, the core reason for "destocking alongside price declines" is that the market has shifted its pricing focus from the monthly inventory drawdown to expectations of weakening demand and rising supply in 2027. Until inventory drawdowns translate into spot tightness, the market will continue to price in the Jianxiawo restart, incremental supply from Zimbabwe and Australia, and the demand impact of the consumption tax.
Yet, the destocking continues. If production cuts exceed expectations, imports stay low, or production schedules underperform again, the supply gap could widen further, and spot tightness may be a matter of time. Near-term price direction will depend on spot market strength, while the pricing of pessimistic forward expectations is likely to diminish gradually.
Over the medium term, both supply and demand are on an expansion path, with the critical variable being the pace at which incremental supply materializes. The capacities under maintenance earlier are expected to return gradually after August, though the Jianxiawo restart remains uncertain. Zimbabwean and Australian mine restarts are adding to supply, and market expectations of global supply additions are already being priced in.
On the demand side, robust energy storage demand, pre-tax-removal production rush, and the forthcoming LFP capacity ramp-up are expected to underpin consumption. Year-end lithium carbonate inventory-to-sales ratios are expected to decline to relatively low levels, providing medium-term price support.
Key risks to watch: a faster-than-expected Jianxiawo restart, lithium salt production cuts falling short of expectations, concentrated African and Australian ore arrivals, battery consumption tax suppressing end-demand more than expected, and LFP new capacity ramp-up falling short of expectations.
Written by Aggie Hu, huchenying@mysteel.com
