Market participants indicate that if there is an unexpected reduction in the project in the future, the reduction in lithium carbonate inventory in September and October may exceed expectations. During the peak consumption season in September and October, the recent improvement in the fundamentals and the turning point in inventory have already emerged.
On September 11, Caixin reported that the lithium carbonate futures, which had been continuously falling, experienced a strong rebound today.
At the close today, lithium carbonate futures rallied across the board, with the main contract LC2411 closing up 7.91% at 78,450 yuan/ton. Multiple contracts such as LC2412, LC2501, LC2502, and LC2505 also rose by over 7%. The near contract LC2410 had a larger increase than the main contract, closing up 7.93%.
While the prices rose, the open interest for lithium carbonate futures also increased significantly. The overall open interest increased from 29,900 contracts to 414,900 contracts today, with the open interest for the main contract increasing by 176,000 contracts. The lithium mining sector also strengthened, with Tianqi Lithium Corporation, Ganfeng Lithium, Yongsheng Lithium, and Willing New Energy all hitting the limit-up.
Behind the strong performance of both stock and futures markets, there was a rumor circulating in the market today about the suspension of production at Ningde Times Yichun Lithium Plant. According to a report from the Star Market Daily after trading hours, Ningde Times responded to the Star Market Daily, stating that the company plans to adjust the production arrangements for Yichun lithium carbonate based on the recent lithium carbonate market conditions. With this news stimulating the market, the question remains whether the rebound of lithium carbonate is sustainable or just a short-term phenomenon.
A nearly 8% increase in a single day.
As early as the morning session today, lithium carbonate futures and lithium mining sector stocks had already started a strong rebound. At the close of the morning session, the gain in lithium carbonate futures had declined from over 7% to around 5%, but it strengthened again in the afternoon, closing up nearly 8%. Since May, lithium carbonate futures have fallen by more than 30%, temporarily dropping below 70,000 yuan/ton, making today's performance particularly eye-catching.
"Lithium carbonate futures and stocks rose sharply today due to an online rumor about the suspension of production at Ningde Lithium Concentrate Plant, which has enhanced market expectations for supply-side reduction. Short-term sentiment has improved." Liu Xianjie, a nonferrous metals analyst at Minmetals Futures Research Center, commented. In the short term, it is necessary to continue monitoring the operation of the jianxiaowo mine and the supporting lithium salt factories, as well as cross-verify through indicators such as the ratio of customer supply.
According to Liu Xianjie, the rumored annual production capacity of the contemporary amperex technology Jiaxiaowo project is 0.1 million tons of LCE. It is understood from research that the current actual monthly output is around 6,000 tons of LCE, accounting for approximately 8% of China's lithium carbonate supply. Due to its low ore grade, the market generally regards it as one of the high-cost marginal production capacities.
"Therefore, even though the suspension news has not been confirmed, emotional factors have driven lithium carbonate prices to rise by over 7% at one point." In his view, if there is indeed an unexpected reduction in production for the project in the following months, the destocking of lithium carbonate in September and October may exceed expectations.
In the medium to long term, Liu Xianjie emphasized that the suspension of a single project is difficult to reverse the severe oversupply fundamentals.
Wu Jiang, senior analyst at Guotai Junan Futures, believes that in addition to the aforementioned rumors, the news of the suspension of the Global Lithium Australia 0.22 million ton lithium mine project has also led to a higher opening for lithium carbonate futures today.
"From the perspective of fund inflow, the entry of large funds may be another reason for the sharp rise in lithium carbonate." Wu Jiang analyzed that as early as the last week of August, lithium carbonate futures showed an unusual surge in volume, with trading volume increasing by about 30% from a weekly million contracts to 0.415 million contracts over three consecutive weeks, a 30% increase. This indicates a significant increase in disagreement between bulls and bears around the price level of 0.075 million.
"How is the demand in September and October?"
From the current fundamentals perspective, several institutional experts mentioned that under the traditional peak season demand from September and October, the fundamentals have improved recently. Lin Jiani, an analyst at GF Futures, stated that recent spot transactions have improved and downstream companies with rigid buying needs have slightly increased actual spot transaction prices.
"Lithium carbonate still maintains an oversupply situation, but as prices have fallen below 0.08 million, the impact of low prices on supply and the stimulus to demand cannot be ignored." Wu Jiang analyzed that downstream material plants are preparing for the traditional peak season of September and October, with production schedules continuing to ramp up. Spot trading behavior has slightly increased influenced by the upstream production increase, and there are still some price expectations disparity between upstream and downstream, currently still in a price game.
Lin Jiayi also believes that the marginal improvement of the fundamentals is still weak, and it is more important to pay attention to whether there will be substantial joint production cuts in the upstream. Currently, the inflection point of inventory has appeared, and both upstream and downstream inventories have been digested, but the total inventory and warehouse receipts are still relatively high.
From the perspective of demand analysis, Liu Xianjie believes that the downstream battery demand has improved, with overseas supply being reduced during the peak season. Under the optimistic scenario, the weak supply and strong demand pattern may bring about a domestic shortage of 0.01 million tons of lithium carbonate in September and October, and domestic lithium carbonate inventory in the first week of September was reported at 129,821 tons, a decrease of 1,483 tons (-1.1%) from the previous week, and the inventory has been decreasing for two consecutive weeks.
From the supply side, he mentioned that low-cost lithium salt lakes have relatively stable operating rates, and lithium ore extraction and refining plants have a slight reduction in output due to cost pressure and individual plant maintenance during the month. At the recycling end, the production has decreased due to the impact of raw material prices. The domestic output of lithium carbonate in August was 0.0624 million tons, a decrease of 4.8% compared to the previous month.
Trend-based trading still needs to wait.
Although the inflection point of inventory has appeared, the carbonated lithium futures market is still affected by the financial situation, and the uncertainty of the fundamentals is also worth noting.
"The cost boundary of lithium carbonate is quite complicated. The continuous decline since this year has indeed put some pressure on high-cost companies, but it is difficult to explore the bottom support level below using the absolute value of cost." Lin Jiayi said frankly that in the short term, in the case of improvement in the fundamentals and the current industry sentiment, there may be some support in the market to move towards recovery.
However, she reminded that the height of the rebound depends more on the subsequent actions of the upstream, and the demand in the fourth quarter is relatively weak, so it is not advisable to be overly optimistic about the height of the rebound.
"There is still some room for further rebound of lithium carbonate in the short term, and the key to maintaining the subsequent rebound lies in the quality of consumption in September and October." Wu Jiang believes that if destocking is faster than expected, combined with macro coordination, it cannot be ruled out that the lithium price will rebound challenging 0.09 million yuan.
But in the long run, he said that the probability of around 0.07 million becoming the bottom of the lithium carbonate futures price is very small, and there is still room for the lithium carbonate price to continue to decline.
The main reason is that there is still profit space at the mining end. Subsequently, with the decline in smelting orders, there will still be competitive price pressure at the mining end. In this situation, the lithium price will still decline to 60,000 yuan or even lower levels. He emphasized that the competitive supply pattern of lithium carbonate is difficult to reverse, and Chinese-funded, Australian mines, and South American salt lakes still need to lower prices to compete for limited smelting plant orders and downstream demand orders.
Liu Xianjie also said that it is not advisable to be overly optimistic about the rebound of lithium carbonate prices in the "Golden September and Silver October." "If the price rebounds too much, upstream companies may hedge their future production capacity to lock in prices for the fourth quarter and even next year, in order to avoid loss pressure at the bottom of the cycle."
In his opinion, the current rise in lithium carbonate prices is only a temporary rebound, not a trend-turning point. Although the short-term peak season provides some support to the lithium price, supply elasticity and hedging demand can easily suppress the strength of price rebound. If there is no further marginal reduction in supply, and inventory continues to accumulate after the peak season, lithium carbonate may return to a downward trend.