Lithium prices plummet after rallying for a year

A confluence of factors conspired to cause the price fall, which is yet to translate to cheaper EVs.

Photo from CFP

Photo from CFP



Prices of various kinds of lithium, a key ingredient in EV batteries, are plummeting. Suddenly, last year’s heights look a very long way up.

Lithium carbonate averaged 277,500 yuan (US$40,343.21) per ton in the week ending March 24, half the peak of last November. Price drops can be as much as 10,000 yuan per ton on rough days. Liquidity is at drought warning levels. One idle trader told Jiemian News that volumes are less than 10 percent of last year.

‘Still worth getting into’

Compounds derived from lithium carbonate are crucial to lithium-ion batteries. Two components of the battery are made with lithium compounds: the cathode and the electrolyte.

While lithium derivatives seek new reasons to fall in value, lithium ore prices are also suppressed. An investor in African lithium mines said ore loses money while still at sea. Mining rights, he conceded, are still worth getting into, because temporary price swings will have an insignificant impact on long-term demand.

Cheaper lithium is yet to translate to more affordable EVs, but it is quite difficult to tell. While the raging EV price war has distorted the value of the entire supply chain, lithium prices have fallen too fast for even cut-throat car makers to respond.

A wide range of issues lies behind the sudden collapse in demand.

Big discounts, bigger hangover

EV sales have slowed significantly in the first two months of the year, hence the frenetic attempts to breathe life into sales by choking prices. Battery production and sales have logically fallen along with the cars they are expected to power.

“Huge discounts last year mean that EV makers received many orders in November and December that would have been placed in Q1,” said HUANG Xizhong, a researcher at battery company Jiangxi Gotion High Tech.

EV sales in China grew much faster than expected in the past two years. In January and February, however, the increase was only 20 percent year on year, versus 2022’s year-round 93 percent.

“When EV sales stop beating expectations, the upward momentum of lithium prices disappears,” said LI Jiahui, manager at Xiamen Xiangyu New Energy, which makes lithium and photovoltaic batteries.

Drying up downstream

Inventories at lithium refineries have jumped by 60 percent from the previous quarter.

“In a normal market, the downstream – distributors and battery companies – hold over 70 percent of the inventory. Now it’s completely the opposite. The downstream holds 20 percent. The rest is sitting in refineries,” said ZHANG Hang, a commodity analyst.

“Refineries have been selling only 30 percent of their production this year. Then, to make Q1 results look better, publicly traded refineries dumped lithium in March. The more desperate the sales, the lower the prices,” he said, hinting that the market may stabilize after the quarter end.

Other suppliers including miners, traders and battery recyclers are just as worried. Lithium carbonate futures on Wuxi Stainless Steel Exchange briefly dipped under 200,000 yuan per ton, triggering speculation that spot prices will also fall below this level. This was recently considered unimaginable and unacceptable and still is among bright siders. Some claim that pessimistic projections are self-fulfilling and may even trigger a sell-off.

Violent price swings

Analysts say prices will stop falling around April and May and may even tick up in the second half of the year.

“We won’t know until June when production plans are made,” said Zhang Hang. Most likely, prices will fluctuate between 200,000 and 250,0000 yuan per ton for the rest of the year.

But the recent market moves also convinced some people that lithium is capable of violent price swings. Subscribers to this view are buying up while things are cheap and waiting for the price to shoot above 300,0000 yuan again.

An analysis by Guotai Junan this month showed that costs are comfortably below the current price point so there is still room for a further downturn. By some estimates, each 100,000-yuan drop in lithium carbonate prices should translate into a 20,000-yuan decrease in the price of an EV. The recent wave of EV price cuts, however, was mainly the result of weak demand. If the lithium market doesn’t bounce back, EVs may become even cheaper this year.

From unimaginable to near-foreseeable

Another confounding factor, if not the direct culprit, of the current confusion in the market, is CATL’s bulk buying offer.

According to a widely circulated version, EV companies that source 80 percent of their batteries from CATL in the next three years can enjoy steep discounts. Half of the batteries will be priced as they were when lithium carbonate costs only 200,000 yuan per ton. The commodity was trading at 440,000 yuan per ton when the news first came out.

The company told analysts this month that it is trying to get rid of excess inventory and speed up turnaround. In the most recent earnings call, Chairman Zeng Yuqun said the offer was more to win long-term partners than a mere price cut.

Car makers saw battery cost increase by as much as 50 percent last year, mostly the result of rising lithium prices. CATL has reportedly been negotiating with Huawei, Li-Auto, NIO and Zeekr but none has signed up yet.

An offer of 200,000 yuan per ton may not be quite so appealing, now that is no longer unimaginable.