The spot Chinese domestic lithium price continues to set the direction for the lithium market and has accelerated lower since the start of the third quarter alongside spot prices and realized prices that SQM and Orocobre received in the third quarter.
Fastmarkets’ battery grade carbonate spot price exw China, which includes VAT, averaged an equivalent of $9.12 per kg in the third quarter while Fastmarkets battery grade carbonate price cif China, Japan, Korea averaged $10.90 per kg, down by 15.2% and by 9.2% respectively. SQM’s average realized price during the same period was $9.96 per kg, down by 13% quarter on quarter; Orocobre’s fob price fell by 13.5% to $7.11 per kg.
The lower prices from SQM and Orocobre highlight that they have been selling some industrial grades into China, hence their average prices are lower than Fastmarkets’ BG cif prices. But the main takeaway is that prices, with the possible exception of some long-term contract prices, are trending lower across the board. We expect that to continue into 2020.
Prices are under pressure from oversupply, underwhelming demand growth in China and because falling prices tend to prompt the supply chain to destock, which weakens apparent demand.
SQM believes that the oversupply situation will continue into 2020, which will continue to weigh on market prices. This is in line with Fastmarkets’ forecasts. In the past few months, many processors and miners have decided to reduce production, build up strategic stocks and delay expansion plans, all of which are steps in the right direction to rebalance the market. But more supply restraint will be needed, we think.
Livent is the latest company to say it will stockpile material - it will hold back 4,000 tonnes of lithium hydroxide this year, enabling it to meet higher customer commitments for 2020.
While the near-term situation remains gloomy, the outlook remains bright. Indeed, the market seems so focused on the slowdown in Chinese EV sales that perhaps it has taken its eye off Europe - next year will be when Europe steps up a gear in terms of EV sales via the launch of new EV models and promotion of sales, part of auto manufacturers’ efforts to meet 2021 carbon dioxide emission targets. While EV production ramps up in Europe, the supply chain will have to build working inventory - stock building can be a powerful driver of apparent demand. An EV market with two centers of strong growth should make for a more stable market.
All in all, while we remain bullish on the outlook for demand for lithium-ion batteries, the market is facing a triple-negative of oversupply, excess stock and underwhelming demand. The supply chain has started to react to the oversupply situation, which should bring forward the start of a recovery. Stronger demand from Europe will be another bullish development. While we still expect lower prices and more producer restraint in 2020, where we previously expected no price recovery until 2021, we now think prices could stabilize later in 2020 and might increase from there.