Lithium Bear Market Possibly Over as Chinese Battery Giant Reduces Production

Western Electric Vehicle Demand Downgrades

The decline in Western electric vehicle demand over the past year and a half has been a key factor in the collapse of lithium prices from their peak in late 2022. The oversupply of this critical battery metal has become a major concern in recent quarters as electric vehicle demand struggles amidst high interest rates and soaring automobile prices. However, there's a silver lining: China's monthly lithium carbonate production is set to decrease, and this reduction in production has already started to push prices upwards.

Chinese Battery Giant Halts Production

UBS analyst Sky Han announced on Tuesday that Chinese battery giant Contemporary Amperex Technology Co. has suspended production at a significant mine in Jiangxi province, alleviating oversupply concerns for the silvery-white metal.

"After consulting with several contacts, CATL has decided to halt its lithium lepidolite operation in Jiangxi following a meeting on 10 September," Han stated. She projected that the mine's closure could reduce China's monthly carbonate production by approximately 8%, or 5k to 6k metric tons.

"The suspension of CATL's lithium operation in Jiangxi will lead to an 8% or 5-6kt LCE production cut of China's monthly Li2CO3 production, and help rebalance supply and demand," she said.

"After two months of losses in the lithium business and continuous downside risk on lithium price, we are finally seeing a normal supply response from a marginal-cost producer," she added.

Expectations of Price Increase

The analyst anticipates an 11%-23% increase in the Chinese lithium price for the rest of the year. Prices rose by 5.6% to approximately 75,500 yuan per ton on Wednesday. Prices have fallen 88% during the electric vehicle downturn that began in late 2022.

Han warned that previous rumors about suspended mine operations turned out to be false:

"This is not the first time we've heard about CATL cutting or suspending lithium production in Jiangxi. Although the previous news was speculative, we have higher confidence this time," she said.

Surge in Lithium Stocks

Meanwhile, lithium stocks from Australia to China experienced a surge (courtesy of Bloomberg):

Australia: MinRes up 16%, Liontown +13%, IGO +11%, Pilbara +4.9%, Arcadium Lithium +11%

China: Ganfeng Lithium, Tianqi up by maximum 10% in China, Chengxin Lithium gains as much as 7.2%

Ben Cleary, a portfolio manager at Tribeca, told Financial Review, "The rally we're seeing today is almost 100 percent short covering," adding, "Supply coming out of the market is exactly what the lithium market needs, so there is plenty of room for this rebound to run given how hard the stocks have been hit."

Bottom Line

It seems that the lithium bear market could be coming to an end, with China's lithium carbonate production decreasing and prices starting to rise. However, the situation is still volatile, and it's crucial to keep an eye on the market trends. What are your thoughts on this development? Do you think the lithium market will continue to recover? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.