August 4th, News
According to the commodity market analysis system: Recently, the price of lithium carbonate has been fluctuating downward with a weak adjustment. As of August 4th, the benchmark price of battery-grade lithium carbonate was 139,000 CNY per ton, a decrease of 16.27% compared to last month. The fundamentals of lithium carbonate in China continue to improve, and the supply and demand situation is tight. However, why has the market price continued to fluctuate downward, showing a special trend of "strong reality, weak price"?
Strong Fundamentals
The current fundamentals of lithium carbonate are distinctly strong. On the demand side, the two core sectors—new energy vehicles and energy storage—continue to thrive. Downstream battery manufacturers have robust order books, with Chinese battery companies’ production plans for August showing a steady month-on-month increase of 6%–8%. The underlying demand for power batteries is steadily recovering, capacity utilization rates remain high, and rigid demand continues to provide solid support. Overall, demand resilience far exceeds market expectations. On the supply side, disruptions continue to intensify: policy controls by overseas lithium-producing countries, geopolitical conflicts, extreme weather conditions in Argentina, and concentrated maintenance shutdowns at Chinese lithium salt enterprises—all these factors combined are limiting short-term increases in lithium salt supply. Meanwhile, industry inventories continue to decline; the market has now experienced 12 consecutive weeks of inventory reduction. As of the week ending July 30, social inventories had fallen to 114,300 tons, and the pace of inventory depletion continues to accelerate. The overall inventory structure shows differentiated characteristics: inventories at downstream and distribution levels continue to be depleted, while inventories at upstream smelters have only slightly increased. Consequently, overall industry inventory pressure continues to ease, and there is no inventory accumulation in the spot market weighing down prices.
Long-term Pessimistic Expectation
Against the backdrop of comprehensively improving short-term supply and demand, inventory levels, and overall demand, the core reason for the continued weakening of lithium carbonate prices is that market funds have already anticipated and priced in pessimistic long-term expectations. As a result, the current market trend is entirely driven by long-term supply-and-demand dynamics. Previously, the market’s optimistic outlook on an explosive growth in energy storage demand has gradually materialized with the release of lithium battery companies’ interim financial results. Now that these positive factors have been realized, funds have begun shifting toward trading on negative fundamentals, focusing primarily on two key dimensions: First, the growth rate of future demand is slowing down, causing the market to question the sustainability of subsequent energy storage installation demand and no longer endorse the earlier forecasts of rapid growth; second, pressure from future supply is set to intensify, as new industry capacity comes online at an accelerated pace. It has now become a general market consensus that the supply-demand balance will soon turn more relaxed.
Overall, the current lithium carbonate market in China is in a deep phase of contention between a strong short-term reality and a weak long-term expectation, which is the core reason for the divergence in market performance. In the short term, the inventory structure characterized by continuous destocking, the steadily recovering downstream demand, and the tight supply-demand balance have provided a solid floor for spot prices, significantly limiting the downside risk. However, in the long term, the sluggish growth in demand, the expected increase in supply leading to a more relaxed market, and the high valuation pressure on the industry chain continue to suppress the prices of forward contracts, resulting in a persistently weak and volatile market.
Looking ahead at the future market trends, it is unlikely that lithium carbonate will see a one-sided trend. It will most likely maintain a divergent pattern of being stronger in the near term and weaker in the long term. As market pessimism gradually dissipates, supported by a solid short-term fundamentals, prices are expected to stabilize and trend stronger; however, the long-term contracts will continue to be suppressed by the expectation of a more balanced supply and demand in the future, and the valuation correction has not yet concluded. Specific attention still needs to be paid to changes in market supply and demand.
