Lithium taking a nosedive

Energodigest | 27 April 2023
After skyrocketing to a record CNY 597,500 a tonne in 2002, the price of lithium carbonate in China continues to decline, from CNY 519,500 in January to CNY 165,500 in April this year, down around 68% (see Fig. 1). And there are good reasons for that.
The downhill trend for lithium started late last year amid anticipations of lackluster demand on China’s EV market, which could possibly tilt the balance towards higher supply. Chinese EV sales suffered a weak start to the year, having plunged 6.3% YoY[1] in January 2023 after the government decided to end electric vehicle subsidies introduced in 2010 to stimulate demand.[2]

Lithium firms without their own mines are now struggling, as prices have already fallen to the cost of production.[3] Some of them are earning negative margins, unable to sell growing stockpiles due to weak demand from battery manufacturers who have suspended purchases until the prospects for the industry pick up. Against this backdrop, the output of lithium-ion batteries contracted 4.2% YoY in Q1 2023 (see Fig. 2). To stem losses, refiners have decided to cut back production[4].

However, steps taken by automakers are giving momentum to the EV uptake in China. To grab a bigger market share, Tesla has declared a price war on its local rivals,[5] with electric vehicles thus becoming cheaper and their sales soaring almost 56% YoY in February[6] – more than enough to make up for January’s decline. While larger players are able to stand up to this challenge, the smaller ones aren’t and have to give way to the ‘big boys.’

Though EV demand has been on the rise, encouraged by discounts, this hasn’t affected lithium, with the outlook for it remaining hazy. End users now benefit from lower prices set by car makers, but things could change tomorrow if lithium refiners continue to make losses. Another factor to consider is the latest news from Chile’s President Gabriel Boric, who has unveiled plans to nationalize the country’s lithium industry, a major move that could completely reshape the global market landscape.

Subscribe to Moscow Energy Center mailings