Lithium Carbonate Fundamentals Strengthened, yet Prices Continued to Fall

Strong fundamental performance

The current strong fundamentals of lithium carbonate are very evident. On the demand side, the two core sectors—new energy vehicles and energy storage—remain robust, with downstream battery manufacturers experiencing high order volumes. In August, domestic battery production schedules increased by 6%-8% month-on-month, while demand to power batteries steadily recovered, maintaining high utilization rates and solid support from rigid demand, far exceeding market expectations. On the supply side, disruptions persist, including policy controls and geopolitical conflicts in lithium-rich countries abroad, extreme weather in Argentina, and concentrated maintenance periods among domestic lithium salt producers, all of which limit immediate supply development. Meanwhile, sector inventories continue to decline, with the market achieving 12 consecutive weeks of inventory reduction. By the week ending July 30, total social inventories dropped to 114,300 tons, and the rate of inventory reduction continues to expand. The overall inventory structure shows differentiated characteristics, with downstream and distribution sector inventories being steadily worked off, while only upstream smelters experience slight inventory accumulation. sector-wide inventory pressure continues to ease, and spot markets are not burdened by inventory accumulation.

Long term pessimistic expectations

Against the backdrop of overall improvement in immediate supply and demand, inventory, and demand, the core reason to the continued weakness of lithium carbonate prices is that market funds have overdrawn pessimistic expectations in the long run, and the current market direction is completely dominated by the logic of forward supply and demand. The optimistic expectations of the previous surge in energy storage demand in the market have gradually been realized with the mid year performance of lithium battery companies. After the positive results are implemented, funds have begun to shift towards trading negative logic, with a focus on two major dimensions: first, the slowdown in prolonged demand development has raised doubts about the sustainability of subsequent energy storage installation demand, and the market no longer recognizes the demand expectations of high-speed development in the early stage; Secondly, the prolonged supply pressure will be concentrated and released, and the pace of new production capacity in the sector will accelerate. The future loose supply and demand pattern has basically have become a market consensus.

Overall, the current lithium carbonate market is in a deep game stage of immediate strong reality and prolonged weak expectations, which is also the core source of market differentiation. In the short term, the inventory structure of continuous destocking, the steadily recovering downstream demand, and the tight spot supply and demand pattern have built a solid bottom to spot prices, greatly limiting the downward space to prices; However, in the prolonged dimension, weak demand development and loose expectations of supply increment emit, coupled with high valuation pressure from the manufacturing chain, continue to suppress the prices of far month contracts, resulting in a sustained weak and evaporative overall market.

Looking ahead to the future market direction, it is difficult to lithium carbonate to show a unilateral direction, and it is highly likely to maintain a differentiation pattern of near strong and far weak. With the gradual emit of pessimistic market sentiment and the support of solid immediate fundamentals, prices are expected to gradually stabilize and operate towards strength; However, the far month contract will continue to be suppressed by the expectation of loose supply and demand in the future, and the valuation repair market has not yet ended. Specific attention still needs to be paid to changes in market supply and demand.