Lithium Prices Drop, Upstream Costs Remain High

The lithium market is experiencing significant volatility, marked by a sharp decline in prices that has sent shockwaves through the industry. On September 6, lithium carbonate futures saw their prices dip below 70,000 yuan per ton, reaching a record low since their introduction. This downturn is symptomatic of a larger trend that has unfolded throughout 2023, where prices plummeted from an astronomical 500,000 yuan in early January to around 70,000 yuan as of this September.

This drastic decline has had tragic consequences for numerous companies within the lithium production sector. A spotlight on 19 companies from the Wind lithium mining sector reveals a stark contrast in financial health: 14 of these firms reported profits, while five sustained losses. Altogether, the group amassed revenues totaling approximately 82.65 billion yuan in the first half of the year. However, this figure represents a troubling year-on-year decline of 32.52%. Most concerning is the collective net profit, which has fallen to 2.72 billion yuan, a staggering drop of over 90% compared to the previous year.

The struggles of sector giants are particularly telling. Tianqi Lithium (002466.SZ) and Ganfeng Lithium (002460.SZ)—two of the leading entities within the lithium industry—found themselves grappling with losses in the first half of this year. According to their mid-year reports, Tianqi Lithium’s total revenue plummeted to 6.42 billion yuan, marking a 74.14% decrease. The company's net losses amounted to 5.21 billion yuan, which constitutes an alarming year-on-year reduction of 180.68%. This slide in performance has been linked directly to the falling prices of lithium products, resulting in diminished profit margins.

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Similarly, Ganfeng Lithium’s figures revealed a painful transformation from profit to loss. The company reported revenues of 9.59 billion yuan for the first half of 2024, a 47.16% decrease from last year. Pushing this analysis further, Ganfeng documented a net loss of 760 million yuan—representing an unprecedented 113% year-on-year decline. This loss marks the first time the company has faced negative earnings since it went public in 2010, illustrating how widespread issues in the lithium market are affecting even the most established players.

The grim outlook extends beyond these two corporations. According to Wind data, the first half of 2024 saw about 14 companies within this sector report declines in net profit compared to the previous year. Notable examples included Xinjiang City Investment and Tianqi Lithium, whose profits dropped by 355.66% and 180.68% respectively, while Shengxin Lithium Energy saw a decline of 130.58%. In stark contrast, three companies outperformed expectations, reporting net profits exceeding 1 billion yuan; in particular, Salt Lake Co., Western Mining, and Tibet Century Mine generated profits of 2.21 billion yuan, 1.62 billion yuan, and approximately 1.30 billion yuan, respectively.

The escalating crisis is exacerbated by a fundamental imbalance in supply and demand, with current production levels outpacing market needs. This single factor has made it increasingly difficult for companies to sustain profitability. For instance, the average price of battery-grade lithium carbonate plummeted to 103,700 yuan per ton in the first half of 2023, a staggering fall of 68.4% from the preceding year. The sharp decline in prices signals to experts that alleviating the oversupply situation may take longer than anticipated, with downward pressure on prices likely to continue in the near term.

The downward trend has been accompanied by alarming statistics; recent reports from Shanghai Nonferrous Metals Network indicate that prices for battery-grade lithium carbonate hit 72,600 yuan per ton on September 6, the lowest point in over three years. Over the past month, prices have seen a cumulative dip of over 12,000 yuan. Conversely, lithium hydroxide also dropped to a similar low at approximately 71,100 yuan per ton.

Satisfying demand, however, has proven challenging. Data from the China Nonferrous Metals Industry Association reveals that domestic lithium carbonate production surged to 298,000 tons in the first six months of 2024, marking a staggering increase of 48.8% year-on-year. Likewise, lithium hydroxide saw production reach 175,000 tons, up 21.4% from the same period last year. Such robust increases in supply are essential to meet soaring demands for lithium in batteries used in electric vehicles (EVs) and renewable energy storage systems, but this has also led to market oversaturation.

Industry analysts are now highlighting the stark realities faced by mining corporations. Many are struggling with their bottom lines due to rising production costs that have outstripped the prevailing market prices. Analysts expressed that many non-integrated lithium producers, who rely on raw material sourcing, are particularly vulnerable, forcing them to reduce output in response to unmanageable production costs. Signs indicate that the lithium market is undergoing significant transformations, with various players potentially reducing their supply as they respond to cost pressures. This reflects a pressing need for integrated companies that can weather the storm more effectively.

While some sources predict that production cuts may not be evident, persistent oversupply is a constant reality. As the industry continues to grapple with these challenges, it seems the downward trajectory for lithium carbonate prices may persist until more favorable balance is achieved between supply and demand. Current projections suggest that this phase of contraction may result in a rebalancing, with integrated producers potentially seeing reduced average costs and a reshaping of industry structure inevitable. Players lacking their own mineral supplies or facing higher production costs are likely to face the most danger in an increasingly volatile market landscape.