The lithium carbonate market has recently undergone extreme volatility, swinging between substantial declines and robust rebounds. After a sharp two-day downturn, lithium carbonate has remarkably rebounded, plunging initially only to surge to the daily limit just before closing – a development almost beyond belief. This series of maneuvers not only reinstated lithium carbonate's status as the "white petroleum" but also showcased the market's frenzy. Investors may find it challenging to grasp the swift changes in this market.
Recent Lithium Carbonate Futures Price Fluctuations
On December 12th, lithium carbonate futures contracts 2401, 2402, 2404, and 2406 all closed at the limit-down.
On December 13th, the market displayed unusually intense activity during the closing session. With the exception of the 2401 contract, all contracts from 2402 to 2411 hit the limit-up, with the main contract LC2407 experiencing an intraday fluctuation of 13%. Notably, the 2401 contract saw a sudden surge of 18,000 yuan, reversing an initial 8% decline and rising by 10.94%, accompanied by a sharp decrease in open interest. Short positions significantly reduced in the final minutes, with the LC2407 contract witnessing a decrease of 20,000 contracts within 20 minutes, leading to a straight limit-up.
On December 14th, lithium carbonate futures experienced another increase, with the main contract 2401 reporting 104,500 yuan/ton, and 2405 reporting 103,500 yuan/ton.
Double Pressure on the Lithium Carbonate Market: Declining Trends in Futures and Spot Prices
Recently, the lithium carbonate market has shown divergent trends, with both futures and spot prices exhibiting a downward trajectory. In the futures market, particularly those represented by January 2024 on the Guangzhou Futures Exchange, lithium carbonate futures contracts saw a substantial decline of 18,600 yuan/ton compared to the previous week, indicating significant downward pressure in the futures market. Simultaneously, the spot market has also experienced varying degrees of decline. According to Fastmarkets, the weekly spot prices for domestic battery-grade lithium carbonate in China have fallen between 10,000 and 17,000 yuan/ton.
Guangzhou Futures Exchange Measures to Address Lithium Carbonate Futures Market Volatility
Affected by lithium price fluctuations, the Guangzhou Futures Exchange issued a notice, urging member units to enhance market risk prevention and reminding investors to trade rationally, keeping risks within manageable limits.
(Source: Guangzhou Futures Exchange Website)
The Guangzhou Futures Exchange adjusted the price trading limit for lithium carbonate futures from 10% to 13%. Additionally, the exchange increased the margin requirement for lithium carbonate futures contracts from 12% to 14%. Given that lithium carbonate futures prices hit the daily limit-down for two consecutive days, the Guangzhou Futures Exchange proposed plans to raise trading costs. The exchange announced an increase in the trading fee rate for the LC2401 contract from 0.008% to 0.032%. Furthermore, for intraday opening and closing transactions, the transaction fee rose from 0.008% to 0.032%. The Guangzhou Futures Exchange also stipulated that trading entities associated with futures companies should not hold LC2401 contract positions exceeding 2,000 tons in a single day, a significant reduction from the previous limit of 10,000 tons.
On December 14th, the Guangzhou Futures Exchange released a series of announcements regarding lithium carbonate futures. Among them, Xiamen Xiangyu New Energy Co., Ltd. and Xiamen Guomao Group Co., Ltd. were added as delivery warehouses for lithium carbonate futures. At the same time, Jiangxi Jiuling Lithium Co., Ltd., in Yifeng County Industrial Park, increased the maximum standard warehouse receipt volume from 450 tons to 1,500 tons. In addition, Nanjing Jinli Inspection Co., Ltd. became a newly designated quality inspection institution for lithium carbonate futures.
(Source: Guangzhou Futures Exchange)
Supply and Demand Imbalance Causes Lithium Carbonate Price Decline
The primary factor contributing to the recent decline in lithium carbonate spot prices is the ongoing supply and demand imbalance. Even companies with abundant resources find it challenging to cope with market price fluctuations, while those with relatively scarce resources may face greater operational pressures, potentially leading to direct losses. The slowdown in the growth of electric vehicle (EV) sales has resulted in high inventories, contributing to the decline in lithium carbonate prices. Albemarle Corp, the world's largest lithium producer, anticipates announcing lower quarterly profits, primarily due to the dual pressures of recent demand reduction and supply surplus affecting metal prices.
Weak Demand in the Chinese Market: As the largest consumer of lithium, China has witnessed a significant drop in lithium carbonate prices in the July to September quarter, mainly attributed to sluggish purchasing demand. The spot price of Chinese battery-grade lithium carbonate during this period has decreased by approximately 45%.
Financial Performance of Lithium Companies:
- Tianqi Lithium: Despite a 35.52% year-on-year increase in revenue, reaching 33.399 billion yuan, net profit decreased by 49.33% to 8.099 billion yuan. This indicates challenges for the company, such as increased costs or a decline in profit margins.
- Ganfeng Lithium: Operating income decreased by 6.99% year-on-year to 25.682 billion yuan, while net profit attributable to shareholders of the listed company significantly decreased by 59.38% to 6.01 billion yuan. This likely reflects a significant impact of market price declines on the company's profitability.
New Project Launches Aggravate Supply Pressure
Analysts point out that the launch of new projects will further intensify downward pressure on lithium prices, presenting additional challenges for the industry. The future development of the lithium carbonate industry requires companies to take effective measures to adapt to market changes.
What to Expect Next?
Entering December, the volatility of lithium carbonate futures prices has intensified, even witnessing scenes of "limit-down followed by limit-up." It is noteworthy that lithium carbonate futures and spot prices have been hovering around 100,000 yuan/ton in recent days.
On December 11th, Xiangchu Fund expressed deep apologies to investors in a letter, attributing substantial withdrawals of certain products to insufficient expectations for the lithium carbonate market. Xiangchu Fund announced that it would not charge any performance fees during the withdrawal recovery period.
Some industry experts predict that due to the accelerated adoption of electric vehicles (EVs), the gap between lithium demand and supply will remain or even widen in 2023. The CEO of Vulcan Energy Resources stated that the market will remain tense, and shortages are expected.
Executives from Chilean lithium producer SQM also expressed their high confidence in EV demand, deciding to continue using index contracts to benchmark their prices.
While some industry participants hold a conservative view on lithium prices, there is a divergence in the market regarding whether future supply can catch up with demand. S&P Global Market Intelligence predicts a slight surplus in the lithium chemical market in 2023, with a supply of 858,000 tons and demand of 856,000 tons. The forecast for the average lithium carbonate price in 2023 is a 10% year-on-year decrease to $45,833mt CIF Asia. Savannah Resources' CEO pointed out that the market might be more "balanced," but considering the challenges of expanding existing supply projects or launching new projects and increasing capacity, there still exists a significant risk of a deficit.
