According to the latest data, on September 29th, the benchmark price for battery-grade lithium carbonate was 175,000 yuan/ton, a 21.88% decrease from the beginning of September (224,000 yuan/ton). This marks the second time this year, after April, that the price has fallen below 200,000 yuan/ton.
The benchmark price of battery-grade lithium carbonate, after hitting a historic high of nearly 600,000 yuan/ton in mid-November of the previous year, has been on a downward trend throughout 2023, and has fallen below the 200,000 yuan/ton mark twice.
At the beginning of 2021, the price was only about 50,000 yuan/ton. By November 2022, the price had skyrocketed to an almost unreachable 600,000 yuan/ton, marking a price surge of more than 1000% within just over a year. However, market dynamics have shifted, and the price of lithium carbonate has dropped by more than 70% from its peak, with no signs of stabilization.
From the supply perspective, stimulated by the increased scope of new energy vehicles and energy storage, the global production pace of lithium salts has not ceased. Specifically, in 2023, there was a surge in lithium extraction from overseas salt lakes.
CICC Futures estimates that from 2023 to 2025, lithium supply will be approximately 1.1225 million tons, 1.5465 million tons, and 1.831 million tons of lithium carbonate respectively; while demand will be 1.1045 million tons, 1.3612 million tons, and 1.6515 million tons of lithium carbonate. Clearly, in 2023, the industry will achieve a balance of supply and demand, and there will be an oversupply after 2024.
Many leading battery manufacturers have significantly increased their self-sufficiency in lithium resources. For instance, CATL's total lithium carbonate equity capacity and its battery recycling extraction capability is conservatively estimated to release a production capacity of approximately 203,000 tons of lithium salt by the end of 2023, supplying power batteries of 290GWh.
From the demand side, the growth rate of the new energy vehicle market has significantly decelerated this year. Data from the China Association of Automobile Manufacturers shows that from January to August, the production and sales of new energy vehicles totaled 5.434 million and 5.374 million units, respectively, with year-on-year increases of 36.9% and 39.2%, occupying a market share of 29.5%. The association predicts that the domestic sales of new energy vehicles in 2023 will reach 9 million, a year-on-year increase of 35%. Even though this is still growth, it's a significant slowdown compared to the over 90% growth rate in 2022.
In terms of power battery installations, data shows that the total domestic power battery installations reached 309GWh in 2022, a year-on-year increase of 93.8%. For the first half of 2023, the figure was about 156.6GWh, with a cumulative year-on-year growth of only 40.1%.
On one hand, there is the continuous release of supply, while on the other, the deceleration of demand growth. The logic behind the decline in the price of lithium carbonate is clear. However, as the price continues to drop, upstream lithium mining companies, which profited greatly last year, now face shrinking profits.
In the first half of 2023, several lithium mining companies found themselves in a situation where revenues were growing but profits were not. For instance, Tianqi Lithium achieved a revenue of 24.823 billion yuan in the first half of the year, a year-on-year increase of 73.64%, but a net profit of 6.452 billion yuan, a year-on-year decline of 37.52%. Ganfeng Lithium reported a revenue of 18.145 billion yuan, up 25.63% year-on-year, with a net profit of 5.85 billion yuan, down 19.35%.
From the demand side, lithium mining companies are confident in the long-term development of the new energy sector. The global lithium industry is now entering an upward phase in its development cycle. Overall, although there are cyclical price fluctuations in lithium, the high growth expectations of the downstream end, especially the new energy vehicles and ships and the energy storage industry, and related policy support are objectively present and can be reasonably expected. Hence, in the medium to long term, lithium mining companies generally believe that the fundamentals of the lithium industry will continue to improve in the coming years.
Perhaps for this reason, even though lithium prices are in a downward phase, many companies are still fiercely competing for mining rights, creating a sharp contrast between the high premium for lithium mines and the current price of lithium carbonate. The high premium for mining rights reflects the participants' continued optimism about the new energy industry. They believe that as the market penetration of new energy vehicles continues to rise, lithium carbonate will still be a growing market and will remain the main theme of the future industry.
Of note is the fact that as the price of lithium carbonate continues to decline, the price of lithium batteries, which account for a significant portion of the cost of new energy vehicles, has also entered a downward cycle, providing more room for price adjustments for new energy vehicles.
It's well known that power batteries account for almost 40% of the total cost of a vehicle. The soaring lithium prices are now continuously declining, leading to a significant reduction in the manufacturing costs of new energy vehicles. Based on a pure electric vehicle equipped with a 60kWh lithium battery pack, about 30kg of lithium carbonate is needed. If calculated based on last year's peak prices, just the cost of lithium carbonate material would be about 18,000 yuan. However, based on the latest low market price of 223,000 yuan/ton in mid-August, the cost is only about 6,690 yuan. This is a cost saving of over 10,000 yuan per vehicle. Given the latest prices at the end of September, battery-grade lithium carbonate that has fallen below 200,000 yuan/ton obviously has further room to reduce costs.
Additionally, this year, besides the adjustment in the price of lithium carbonate, the prices of other lithium battery raw materials, such as cathodes, anodes, separators, and electrolytes, have all been declining. This gives many new energy vehicle companies the confidence to "actively" reduce prices, and to some extent, intensifies the price war in the new energy vehicle market.
Returning to lithium carbonate itself, how long will this core material for power batteries continue to drop in price? Or, how much more room will it provide for downstream car manufacturers to reduce prices?
We believe that the typical price fluctuation cycle for upstream lithium salts lasts 4-5 years. Within this cycle, prices typically rise for only 1-2 years, followed by a sustained period of price decline. This suggests that the current downward cycle for lithium carbonate might continue for some time.
