The lithium market seems to be calming down. This is demonstrated by the latest report from the consulting firm Macquarie regarding this industry.
According to this report, the expected recovery in lithium prices this year has lost momentum sooner than expected, as insufficient supply has resulted in lower prices and the accumulation of raw material reserves weighs down the market.
Macquarie analyst Alice Fox points out in this report that in March and April there was a strong seasonal recovery in Chinese production of lithium carbonate and hydroxide, although it is estimated that it would have moderated in May.
“The production midstream grew rapidly in the first quarter, but recorded a slower increase in April, and production of ternary cathode materials is expected to show a 13% monthly decline in May. This has caused an increase in lithium carbonate (Li2CO3) inventories, which now reach 92,000 tons, their highest level since these data began to be collected.”
Less sales than expected
Battery inventories in China rose slightly in March, even though original equipment manufacturers in this country have seasonally increased sales of electric vehicles since the Lunar New Year. Global sales of battery electric vehicles increased by 10.6% between January and April, a significant year-on-year increase, but a notable slowdown compared to the 26.9% growth rate in 2023. By contrast, Sales of plug-in hybrid vehicles increased by 49.7% between January and April, compared to 44.5% in 2023.
The pace of expansion of electric vehicle sales in China is expected to slow to 24.6% this year, from 30.2% last year. The Chinese market is maturing, with a city penetration rate of 67.9% in 2023, compared to the national average of 35.7%. Total Chinese exports of such vehicles rose 19.6% in the first quarter, but exports to the EU fell 19.6% year-on-year in January and February.
“At this time, it is difficult to determine whether the reduction in exports to date is due to lower demand or is a premature response to possible tariffs, which could have to reach 40-50% for the market to stop to be attractive to Chinese exporters,” says Fox.
Slightly lower prices
Spot spodumene prices peaked at $1,240 per tonne in early May, 46% above their January lows, but have since lost momentum. Mainland Chinese hydroxide and carbonate prices recovered marginally from their lows after the Lunar New Year holiday, driven by unconfirmed reports of an environmental crackdown on domestic producers, inventory replenishment and concerns about cancellation of warrants on the GFE market for inspection. However, prices failed to make significant progress and have weakened slightly lately due to rising inventories.
Since January, added volumes on the GFE and CME have diverged, continuing to fall on the GFE but rising on the CME as the return of the contango structure increases the attractiveness of adding short positions and allowing positions to are adjusted to the price (since the CME is settled in cash). Consumer purchases, offset by investor sales, have been the dominant flows.
