In recent months, the lithium carbonate industry has experienced significant turmoil, with phrases like "plummeting prices" and "massive losses" becoming the normThe industry has been struggling for over six months, culminating in August when the price of lithium carbonate fell below 80,000 RMB per ton, a threshold considered critical for the balance of supply and demand in the market.

After breaking through this crucial benchmark, the price of lithium has continued its downward spiral, inching closer to 70,000 RMB per tonOn August 15, the futures price of lithium carbonate saw a continued decline, with the main contract dropping 3.21% to 72,400 RMB per tonFurthermore, the average spot price for battery-grade lithium carbonate reported by Shanghai Metals Market (SMM) fell to 75,400 RMB per ton.

This downward price trend has negatively affected most lithium salt enterprises, leading many to adopt strategies like hedging and proactive production cuts to weather the storm.

Limited Rebound Signs in the Second Half

On the afternoon of August 13, Hainan Salt Lake International Trade Co., Ltd

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conducted a public auction for lithium carbonate products from Qinghai Salt Lake Blue Technology Co., LtdA total of 900 tons were auctioned, with only 210 tons selling at the base price of 74,000 RMB per ton; the remaining 690 tons went unsoldIndustry analysts suggest that this auction result may reflect whether lithium prices have reached a bottom, further exacerbating market pessimism.

According to SMM lithium salt analyst Zhou Zhicheng, when looking back at the first half of the year, lithium carbonate prices began to recover in late January amid a temporary supply-demand mismatchHowever, following a pricing war among end-users in March, prices further increasedThe rapid recovery of lithium salt production between March and April, coupled with high inventory levels of industry cathode materials, revealed that demand far exceeded supply for lithium salts once more

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Adding to this, significant increases in the lithium carbonate amounts supplied by top-tier battery manufacturers to cathode material producers starting in May led to a sharp decline in purchasing needs for lithium salts, causing a gradual price drop after May.

Data from iFinD indicates that the main futures contract for lithium carbonate has plunged over 30% based on the opening prices, while the average spot price for battery-grade lithium carbonate has declined over 20%.

As for the potential for price rebounds in the second half of the year, Zhou Zhicheng believes that given the expected decrease in lithium carbonate production alongside improvements in demand, the supply surplus will narrow in September

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Additionally, the seasonal replenishment of downstream stocks, coupled with lower inventory levels, is likely to provide some momentum for price recoveryHowever, high levels of inventory in the current spot market may restrain the extent of price increasesMeanwhile, the outflow of resources from futures pools may impact the flow of spot market goods and consequently influence spot prices.

Lithium Companies Struggling for Survival in Loss

In the face of continuously declining lithium prices, lithium salt companies, closely linked to these price fluctuations, have found themselves on the brink of lossesData from iFinD suggests that within the ten lithium companies categorized by Tonghuashun, eight are expected to report performance declines, with four projected to incur losses

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Notably, the major players—Tianqi Lithium, Ganfeng Lithium, and Shengxin Lithium Energy—have all reported substantial losses.

Among them, Tianqi Lithium is anticipated to record a loss between 4.88 billion and 5.53 billion RMB, compared to a profit of 6.452 billion RMB in the same period last yearGanfeng Lithium expects losses ranging from 760 million to 1.25 billion RMB, down from a profit of 5.85 billion RMB a year earlier, while Shengxin Lithium anticipates losses of between 130 million and 190 million RMB, compared to a profit of 611 million RMB a year prior.

Currently, as lithium prices appear to have more room for decline, companies are actively seeking ways to endure this "winter." The first step is hedging

Tianqi Lithium has stated that they have completed their preparations for hedge execution and have established a dedicated futures management team to mitigate the potential risks of price volatility on their core product, thus ensuring stable and sustainable operational performance.

Zhou Zhicheng explained that the hedging business can be divided into two aspects: one involves using futures contracts for hedging where companies sell or buy contracts equivalent to the prevailing quantity in the spot market to lock in future procurement costs or selling pricesThe second involves intertemporal arbitrage, where if a significant price difference arises between contracts with different delivery dates, companies can exploit this during specific windows to achieve arbitration profits, effectively hedging their risks.

The second approach involves active production cuts

Previously, Albemarle, the world’s largest lithium miner, announced that they were initiating a comprehensive evaluation of costs and operational structures in response to declining commodity prices, including halting the construction of a lithium processing line at the Kemerton facility in Australia and conducting maintenance on another line thereAs a result, layoffs of about 300 employees may also be on the table.

On June 25, Chinese lithium giant Zhichun Lithium issued a notification indicating that its subsidiaries Jiangxi Jinhui Lithium and Tianzhu New Materials would start phased and orderly maintenance operations for their lithium carbonate production lines beginning July 1.

Additionally, some companies are scrapping costs

Ganfeng Lithium has previously stated that the company will gradually shift its focus toward the extraction and development of low-cost resources such as brineOn July 15, Ganfeng announced that they would not exceed 200 million USD (approximately 1.452 billion RMB) in overseas bonds to support operations at their lithium lake project in Argentina, which is currently one of the world's largest lithium brine extraction projects.

It is understood that costs for lithium salt production can vary widely based on raw material sourcesThe cost of lithium extraction from salt lakes primarily ranges from 30,000 to 50,000 RMB per ton, representing a significant cost advantage; whereas the cost from spodumene stands between 40,000 to 80,000 RMB per ton, with high-quality and newly established lithium micas being even costlier

Companies such as Salt Lake Coand Zangge Mining that recorded profit growth in the first half of the year owe this success in large part to their low-cost advantages from lithium extraction via salt lakes.

During the China Lithium Industry Conference and the 2nd Lithium Battery New Energy Development Summit held recently, Zhang Sikai, chief analyst for non-ferrous metals at Minmetals Securities, stated that from 2024 to 2026, there will be substantial releases of lithium supply, particularly from low-cost salt lakes in South America, making a cost battle for lithium carbonate unavoidable and likely leading to the exit of some high-cost lithium resources.

In discussing how lithium companies can successfully navigate this downturn, Zhou Zhicheng emphasized that aside from cost control and risk hedging, lithium salt enterprises should also focus on effective inventory management to adapt to price fluctuations and avoid excessive losses due to declining prices

Additionally, through vertical integration and connecting upstream and downstream supply chains, companies can reduce the cost of raw materials to boost overall profitability.

The Race for Lithium Resources Continues

Despite the potential for a prolonged oversupply of lithium carbonate in the coming years, the long-term demand for lithium resources remains robustWith countries around the world striving towards their climate objectives, the current announced projects can only satisfy about 50% of the projected lithium demand by 2035.

It's also noteworthy that China's dependency on foreign lithium resources remains high

According to the China Nonferrous Metals Industry Association lithium branch, citing customs data, in 2023, China imported approximately 4.01 million tons of lithium concentrate, predominantly from Australia, Brazil, and Zimbabwe, reflecting a year-on-year increase of about 41%.

In light of these circumstances, the competition for lithium resources has intensifiedSince the beginning of this year, several companies, including Ganfeng Lithium, Shengxin Lithium, and Yahua Group, have announced plans to expand their lithium resource reserves, including strategies such as signing lithium concentrate purchase agreements and acquiring overseas mining rightsInsiders have previously indicated that securing high-quality lithium mining resources can ensure a stable supply of lithium and enhance corporate profitability through integrated supply chains.

However, with calls for resource nationalization rising, the risks associated with overseas investments in lithium resources continue to increase, impacting even the "duopoly" of lithium enterprises.

On August 8, the Economic and Commercial Office of the Chinese Embassy in Chile reported that Tianqi Lithium submitted a motion to the Santiago Court of Appeals seeking to reconsider its decision aimed at suspending the cooperation agreement between Chilean Copper Company (Codelco) and Chilean Chemical and Mining Company (SQM).

SQM is a key affiliate of Tianqi Lithium; the aforementioned agreement may lead to the government of Chile "nationalizing" its core mineral resources