After officially listed on Guangzhou Futures Exchange (GFEX) on July 21, 2023, the lithium carbonate contracts from LC2401 to 2407 all hit the limit down of 14% on the first trading day except LC 2401, as the market generally believed that the lithium carbonate sector will experience a supply surplus in at least Q1 2024.
Nevertheless, the lithium carbonate sector is quite active based on the intraday turnover of RMB 1.3 billion, which alludes to a potentially sophisticated and significant place for price discovery in the future. GFEX adopts the delivery of material goods, which is believed to be a better way to unify the spot and futures markets.
Lithium carbonate goes by the name of "white oil", highlighting its significance to the national strategy. It is a key raw material to produce lithium-ion batteries, which finds its direct applications mainly in cathode materials including LFP, NCM & NCA, LMO and LCO.
The prices of lithium carbonate rode on a roller coaster starting 2022 and embarked on a downward track after peaking on November 11, 2022 at Yuan 590,000/tonne (average retail price, the same below).
The prices fell to Yuan 480,000/t initially before the Spring Festival holiday began on January 20, 2023, and accelerated to drop with downstream orders staying poor after the market operation resumed. CATL's lowering lithium carbonate prices towards its clients further aggravated the situation.
From the perspective of cost, producing lithium carbonate with lepidolite in Jiangxi Province is generally taken as the marginal cost, which is estimated at around Yuan 120,000-130,000/t. The bottom cost would then add up to around Yuan 150,000/t after counting in the inventory building and destocking cycle of smelters.
With this in mind, lithium carbonate prices began to rally after bottoming at approximately Yuan 180,000/t on April 20, and then rebounded to Yuan 320,000/t supported by downstream players building inventory, before consolidating in the range of Yuan 280,000-300,000/t.
Source: Mysteel
The forward lithium carbonate contracts listed on GFEX, on the other hand, mirror the supply-demand balance in 2024. Since the continuous commissioning of lithium mines in Africa is expected to substantially lift the supply next year, the market has been consensual that lithium carbonate prices will fall especially as this compound is still profitable at present, a root cause for lithium carbonate contract's limit down on its debut day.
On the demand side, the annual production of LFP and ternary cathode materials is expected to grow 12-15% in 2023, based on Mysteel estimate that China new energy vehicle sales could record a yearly jump of 35%. Therefore, the relatively flat demand growth is unable to combat the supply growth of lithium ore, weighing on lithium carbonate prices in the second half of 2023.
For Q1 2024, the lithium carbonate demand is likely to drop compared with the previous quarter based on historical data. That is, as lithium ore supply growth is almost a foregone conclusion, lithium carbonate prices are more than likely to drop on oversupply.
Moreover, the lithium carbonate contract hitting limit down will serve as a solid reference for the negotiations over next year's long-term contracts with Australian mines. Mysteel believes that the spot prices of lithium carbonate will inevitably impact the demand for overseas lithium ore in the future, which will subsequently influence the pricing of lithium mines. With the lithium carbonate contract reflecting the future supply-demand balance which determines the pricing of lithium mines, the pricing of spots is expected to near the price discovery process of futures.
The lithium carbonate contract is also of great significance to the end-market players. On the news front, CATL demanded a 5-10% discount on lithium carbonate prices based on the market prices towards its cathode material suppliers, with tolling being the alternative, indicating an on-going tug-of-war directly between battery factories and lithium salt manufacturers.
Looking ahead, the pricing over lithium carbonate will be increasingly rational with the listing of lithium carbonate futures contract.
The rapid development of Africa's lithium mines dated back to 2021, when a number of Chinese investors set their foot in Africa. The process of several Sino-funded mines is as follows:
1. Bikita in Zimbabwe owned by Sinomine Resource Group: 700,000 tonne/year dressing capacity at full production; 2 Mt/year petalite concentrate dressing capacity and 2 Mt/year spodumene concentrate dressing capacity expected to come on stream in 2023; annual output likely to amount to 60,000 tonne LCE per year;
2. Arcadia in Zimbabwe together owned by Huayou Cobalt and Tingo: fully in operation since March, 2023;
3. Sabi Star Lithium Mine in Zimbabwe owned by Chengxin Lithium: commissioning started in May 2023; products shipped back to China soon.
Written by Aggie Hu, huchenying@mysteel.com