Latest data on China lithium: Demand increasing, supply falling...

Latest data on China lithium: Demand increasing, supply falling


By Carl Capolingua
Mon 12 Feb 24, 3:33pm (AEDT)

Many followers of the market for lithium minerals would agree China is both the problem and solution to the current problem of low prices. China is the world's largest consumer of lithium minerals, but it’s also a major supplier of both raw and refined lithium products, much of the latter which is used by its massive electric battery manufacturing industry.
With Chinese producers and suppliers now on break for Lunar New Year celebrations, there are hopes of a post-holiday restocking cycle which could help stamp at least a short term low in lithium prices. Even if it’s only a short term low, it couldn’t come at a better time for ASX lithium stock investors who tentatively moved back into the sector last week.
Major broker and long time lithium bull Macquarie, has issued a research report covering the latest developments in the Chinese lithium demand and supply environment. Let’s investigate the key findings of Macquarie’s report, as well as their three favourite ASX lithium stock picks.
Macquarie on China lithium demand & supply

Lithium inventories are falling

• Lithium salt inventory (lithium carbonate and lithium hydroxide) fell 6% month on month (MOM) in January, this is the first monthly decline since October 2023
• January inventories represent just 1.4 months of demand (down from December’s 1.6 months)
• Post Chinese New Year demand is “key to restocking” going forward

China lithium inventories in terms of cathode-electrolyte demand. Source; SMM, Macquarie Research, February 2024

Demand is increasing, supply falling

• Cathode and electrolyte demand rose 7% MOM in January (beating Macquarie’s +1% forecast)
• Lithium supply fell 2% MOM in January
• As result of the above, surplus narrows to 4.9 kilotonnes (kt) lithium carbonate equivalent (LCE) vs 7kt forecast
• Surplus expected to persist in February, but to narrow slightly

Lithium supply surplus to narrow in Feb. Source: SMM, Bloomberg, Macquarie Research, February 2024

Too early to call meaningful demand upturn

• Data suggests “mild restocking” prior to New Year, but demand recovery from batteries and EVs “remains muted for now”
• Battery production is still trending down, expected to decline by 5%–10% MOM in February, while outlook for energy storage looks “gloomy”
• China EV sales -38.8% MOM in January, sales slowdown accelerating

Cost curve support

• Prices of lithium carbonate and spodumene in China appear to be stabilising

China Li2CO3 spot price implied spodumene price (US$948/t) is still lower than the spot spodumene prices (US$1,000/t). Source: Macquarie

• Cost curve support for low/high grade lepidolite producers now at RMB 68,000/t–RMB 144,000/t (versus current spot price of RMB 97,500/t)
• Lithium carbonate production to fall 12.8kt in February with Chinese lepidolite as a source -33% MOM, spodumene -17% MOM, brine -9% MOM, and recycle -38% MOM

China lepidolite production. Source: SMM: Bloomberg, Macquarie Research, February 2024

What to watch in the Chinese lithium market in February

Current lithium prices are now “pressuring both marginal players and cost leaders”. In the near term, Macquarie believes behaviour by refiners and battery component/manufacturers in the period immediately after Chinese New year will be “will be the key drivers for lithium prices”. In particular, they’ll be watching the data for EV sales and battery production plans very closely.
Macquarie’s Top 3 ASX lithium sector picks

Pilbara Minerals (ASX: PLS)

• Broker’s preferred pick among ASX lithium producers
• “Most unleveraged balance sheet” in broker’s ASX lithium coverage universe
• Rating: “OUTPERFORM”; Price Target: $4.50

Arcadium Lithium (ASX: LTM)

• Broker sees value in light of stock’s recent price underperformance
• Rating: “OUTPERFORM”; Price Target: $11.00