China Experiences Slight Decline in Lithium Prices Amid Surplus Supply

Lithium prices in China has witnessed a substantial and rapid decline this week, reaching a 26-month low. The trial delivery of the metal to the Guangzhou Futures Exchange revealed an unexpectedly abundant supply in China, the world's leading producer of this essential battery metal.

The most active January lithium futures contract on the exchange experienced a marginal 1% uptick on Friday, thereby concluding the week at $17,202.65 per metric ton—a notable 10% drop for the week. This decline follows a 7% fall in the preceding week. The contract's value has now plummeted to less than half of its price at the commencement of trading in July, thereby marking a 7% decrease on Thursday alone.

Analysts and traders attribute this significant drop to a test run conducted by the exchange for the new contract, revealing a higher-than-expected availability of deliverable supply. Zhang Weixin, a lithium analyst at China Futures, notes that the trial disappointed those anticipating a shortage of deliverable goods upon the contract's maturity, thereby accelerating the price fall.

The impact on spot lithium prices was also notable, with spot lithium carbonate assessed by Fastmarkets experiencing an 11% decline for the week. This marks the most substantial weekly drop in seven months, following a 4% decline in the previous week.

Zhang suggests that prices could potentially decrease by year-end if demand fails to show signs of improvement. This scenario reflects a stark contrast from the peak prices last November, prior to the cessation of China's national subsidies for electric vehicles.

The market's downward trend is further exacerbated by an increase in the production of domestic lithium carbonate coupled with lower raw material costs. Prices of spodumene, a principal raw material for lithium chemicals, plummeted to $1,590 per ton this week, thereby marking an 80% decline for the year and the lowest figure since August 2021.

China's lithium carbonate output is anticipated to rise by 9% from October to 43,970 tons in November, which represents a 20% increase compared to the same period last year. Additionally, readily available inventories in the market have surged to 63,296 tons in mid-November, up from 45,917 tons in October.

As supply growth outpaces demand, global lithium is expected to face a 4% oversupply in the current year, according to CITIC Futures. This has marked a substantial shift from the deficits observed in 2021 and 2022, thereby highlighting the evolving dynamics in the lithium market.