Golden September, Silver October 2023 unlikely for China’s lithium market?

Traditionally, demand for lithium salts from Chinese cathode producers peaks in September and October, with producers stockpiling ahead of the country’s week-long National Day Holiday and in preparation for the fourth quarter of the year, when production ramps up to meet annual targets.

“This year, we may not see a Golden September or Silver October in the lithium market due to weak demand. If it were going to happen, there would have already been an uptick in buying activity,” a Chinese lithium producer source told Fastmarkets.

“Lithium demand in China remains weak, and, even now, cathode makers have not begun to restock, opting instead to purchase material on a hand-to-mouth basis,” the lithium producer added.

Thin appetite for lithium salts has been a persistent theme in China’s lithium market so far this year, following the country’s discontinuation of its electric vehicle (EV) subsidy from the beginning of this year and an overall gloomy macro-economic environment. China’s lithium prices have therefore remained mostly on the downtrend so far this year.

Fastmarkets’ weekly price assessment of lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 180,000-190,000 yuan ($24,671-26,041) per tonne on Thursday September 14, down by 15,000 yuan per tonne from 195,000-205,000 yuan per tonne a week earlier, and down by 63.37% from 490,000-520,000 yuan per tonne on January 5.

Fastmarkets’ corresponding weekly price assessment of lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price range exw domestic China was 170,000-200,000 yuan per tonne on September 14, widening downward by 10,000 yuan per tonne from 180,000-200,000 yuan per tonne a week earlier, down by 63.37% from 490,000-520,000 yuan per tonne on January 5.

Oversupply amid weak demand

“The entire supply chain, from lithium producers to battery producers, is heavily oversupplied, which limits demand for battery raw materials, including lithium,” a second Chinese lithium producer source said. “This also explains why the market is not expecting a Golden September or Silver October.”

In the first eight months of 2023, China produced a total of 418.8 gigawatt hours (GWh) of power batteries, with only 219.2 GWh of this output was ultimately installed, according to the China Automotive Battery Innovation Alliance.

“The data means that around half of the batteries produced became [surplus] inventory,” a Chinese cathode producer said.

The September battery output in China is expected to only post limited monthly growth from August, Fastmarkets’ senior analyst for battery raw materials, Vicky Zhao said.

“The annual growth rate of EV sales is forecast be lower compared with last year and lithium prices are falling, both of which contributed to a wait-and-see attitude prevalent in the battery supply chain,” Zhao said.

In upstream cathode markets, sources noted the similar oversupply against weak demand from the battery sector.

“Over the past two years when the EV market was booming, cathode production in China ramped up rapidly. The construction time of a cathode project is on average several month, but construction of a lithium salt project can take several years,” the second lithium producer source said.

Thin orders from battery makers and low margins were persistent headwinds to Chinese cathode makers in recent weeks, resulting in lower production rates compared with the same period last year when they ran at full capacity, sources told Fastmarkets.

Lithium iron phosphate cathode production rates are currently 60-70% of their capacity on average, while the rate for nickel cobalt manganese (NCM) production is even lower at no more than 50%, multiple market participants said.

“With capacity outpacing demand, cathode makers are competing against each other to secure any orders from battery makers,” the second lithium producer source said.

The weak cathode market translated to thin demand for lithium. Therefore, despite multiple lithium producers suspending production, the majority of market participants downplayed the impact of the suspensions would have on the market.

“The lithium market presently has [too much supply and not enough demand],” a Chinese battery materials trader said. “The suspended production won’t have any impact on the market or prevent the prices from falling further.”

Fastmarkets learned that two major lithium producers in China planned to put their facilities on care and maintenance recently, with one citing lower-than-expected order volumes.

In addition, smaller lithium producers feeding on lepidolite in China’s Jiangxi province have already suspended production due to high production costs against low sales prices of lithium and a lack of feedstock.

Bearish market sentiment

Market participants broadly hold bearish attitudes and a lack of confidence in any near-term revival for the lithium market.

“Whether the lithium prices will stop falling ultimately depends on when demand picks up. If demand remains weak, there’s no bottom to the current lithium price downtrend,” a second Chinese cathode producer source said.

A lack pf supportive factors which may bolster the battery and lithium market kept market sentiment bearish, with multiple sources citing that the weakness may persist into the fourth quarter unless polices that can significantly and directly benefit EV consumers are rolled out.

China’s local governments have rolled out multiple policies to support their EV consumption. In Shanghai, for example, trade-in subsidies for EV purchases have been extended until the end of 2023. But these policies have only had a limited impact so far in terms of supporting the lithium and battery demand and market sentiment, Fastmarkets learned.

Weakness in futures prices also added to the bearish sentiment toward lithium, sources said.

The most traded January 2024 lithium carbonate futures contract on Guangzhou Futures Exchange closed at 154,150 yuan per tonne on Wednesday September 20, 35.48% lower from its opening at 238,900 yuan per tonne on July 21, the first day of its launch.

“The more bearish the market sentiment is, the less buying appetite there will be, with consumers trying to delay purchases on the expectation that prices will remain on the downtrend,” a third Chinese cathode producer source said.

The lithium demand in September and October is an important indicator for the demand performance in lithium and battery markets in the fourth quarter, sources said.

“If lithium demand remains weak in September and October, the demand outlook for the entire fourth quarter won’t be promising. Therefore, it’s very important to monitor the recent lithium demand and price performance,” a third Chinese lithium producer source said.

But Zhao said, “some cathode producers may restock after China’s Mid-Autumn and National Day Holiday [from September 29 to October 6], which could send some support to the lithium market.”

The Chinese battery materials trader still had some hope for the fourth quarter, however, saying “the fourth quarter may not be totally hopeless in terms of demand yet because the battery supply chain is still expected to ramp up production to meet annual targets, which may in turn help stabilize lithium prices.”

Keep up to date with all the lithium price changes and data on our dedicated lithium price page.