Lithium Carbonate: Strong Reality vs. Tax-Induced Weak Outlook

On July 27, a "Price Adjustment Letter on Conveying Consumption Tax Costs" (hereinafter referred to as the "Price Adjustment Letter") issued by EVE Battery Co., Ltd. circulated in the lithium battery sector. The Price Adjustment Letter shows that in accordance with Announcement No. 20 of 2026 issued by the Ministry of Finance, the General Administration of Customs and the State Taxation Administration, the state will gradually resume the collection of consumption tax on lithium primary batteries and lithium-ion batteries starting from September 1, 2026. This policy is a rigid statutory cost change, and the company and its relevant subsidiaries will synchronously convey the consumption tax costs in accordance with the rules.

The Price Adjustment Letter shows that starting from September 1, 2026, a 2% consumption tax will be levied on domestic sales items based on the original tax-exclusive supply price. The ex-factory link to export items will be subject to the same tax rate as that to domestic sales, implementing a unified price. After the corresponding items complete export customs declaration, tax refund applications will be filed in accordance with the national "collect first and refund later" policy. In addition, the framework orders that have been signed however not yet delivered will also be subject to this price adjustment.

It is reported that the Ministry of Finance and other departments issued a notice on adjusting the consumption tax policy to some batteries on July 17. From September 1, 2026, consumption tax will be levied on primary lithium batteries and lithium-ion batteries at a rate of 2%; from September 1, 2027, consumption tax will be levied on the above battery items at a rate of 4%.

According to reporters, the price adjustment letter issued by EVE Energy is the first official notice from a leading domestic battery manufacturer to transmit costs to customers after the introduction of the new battery consumption tax policy.

Yu Shuo, an analyst at Chuangyuan Futures, said that the increase in battery consumption tax immediately squeezes the profit margins of battery manufacturers. If companies insist on not raising prices to maintain market share, marginal companies will fall into losses due to inverted costs; if they try to pass on costs to downstream sectors, the costs will eventually be passed on to the consumer side, suppressing demand.

The consumption tax is levied at the stage of lithium-ion cell ex-factory. Lithium carbonate, as an upstream lithium salt raw material, is not within the tax scope and bears no direct tax burden. The relevant impacts are indirectly transmitted through links such as downstream battery manufacturers' production scheduling, pricing, and technical route selection," Yu Shuo said. Referring to the previous adjustment of the battery export tax rebate policy, to prevent the price increase pressure brought by taxes and fees, battery factories will create batteries in advance and increase battery production scheduling in August, thereby growing the immediate demand to lithium carbonate. However, due to the short policy window period, it is difficult to have a significant impact.

As to the fundamentals of lithium carbonate, Lin Jiani, an analyst at GF Futures, pointed out that the output of lithium carbonate maintained a downward direction last week. According to SMM data, the weekly output of lithium carbonate was 23,868 tons in the week ending July 23, a month-on-month decrease of 680 tons.

Overall demand is resilient, with development expectations in the short term." Lin Jiani said that this year's increase in the average battery capacity per new energy vehicle and export development have driven the demand to the auto parts and battery manufacturing chains. Leading energy storage companies have basically maintained full production, and immediate demand is highly certain. Material production is expected to grow steadily, with new projects ramping up production in the third quarter and still seeing capacity expansion. Structurally, the output of lithium iron phosphate continues to increase, while ternary materials are relatively weak in structure, however their production scheduling also maintains a month-on-month development. The demand to lithium carbonate in June was 151,004 tons, an increase of 3,338 tons from the previous month, a year-on-year development of 61.06%. The domestic demand to lithium carbonate in July is expected to continue to rise to 159,512 tons, a month-on-month increase of about 5.6%.

Looking ahead, Yu Shuo believes that the current lithium carbonate market is in a fierce game between "continuous destocking in reality" and "loose supply in the long term". The introduction of the consumption tax policy has provided new realistic materials to the bearish narrative, which is likely to amplify immediate emotional fluctuations. However, it must be clarified that the consumption tax is a policy to the redistribution of profits in the manufacturing chain. It will not immediately change the pace of supply emit at the lithium ore and salt lake ends, nor will it change the "ceiling" of the medium and prolonged demand to global new energy.

Lin Jiani also believes that the market has been in a continuous game between the recent "pessimistic expectations" to the long term and the "strong performance" in the current peak season lately, with widening divergence between bulls and bears. After the price of lithium carbonate broke down sharply in the early stage, the market sentiment has stabilized somewhat at present. Downstream production scheduling and social inventory destocking are strong, and the medium-to-immediate fundamental face still has certain support. In the short term, the price of lithium carbonate might experience wide fluctuations, and it is necessary to pay attention to whether the condition of the peak season can be gradually fulfilled after the sentiment stabilizes.