Tomorrow Investor

Is China’s Lithium Sector Bottoming Out?


After a nearly two-year-long rally, lithium prices in China’s declined sharply in recent weeks as minor players in the industry seek ways to stem their losses following a massive drop in the price of the sought-after material by nearly 75% in the past several months.

However, this may soon change as leaner stocks and an increase in prospective battery storage and electric vehicle sales point to a possible increase in demand for the material.

According to experts, the overall decline is the direct effect of the way companies within the lithium battery supply chain tried to skirt high prices by banking on their inventory rather than buying fresh supplies. Likewise, the reduced demand for electric vehicles stems from Beijing putting an end to subsidies on EVs as well as increased pricing competition among brands.

But while these have made EVs more affordable to end-users, it has not changed the fact that lithium remains four times more expensive than it was back in 2020.

Despite this, the price has already dropped because of production costs, particularly among companies that do not have their own mines or who have yet to secure supplies for the long term. 

Likewise, Chinese investment firm Huaan Securities released a statement saying that the price of lithium could stop falling and stabilize by the end of the current quarter, seeing how current inventories remain low and downstream demand is steadily recovering.

Not Everyone

While China is going through a spate of price correction, experts point out that it’s not necessarily the case elsewhere in the world.

According to London-based mining consultancy Benchmark Materials, what’s happening in China is mostly due to the high cost of mining, rebuilding inventories among individual corporations, as well as a better outlook with regard to both EV and battery storage sales as the country continues with its shift to more sustainable power sources.

Likewise, lithium firms in the Yichun hub in Jiangxi have reduced processing rates in order to mitigate losses. But analysts are quick to point out that the lithium market has nothing to worry about as it is unlikely that lithium prices will go lower than current production costs in the region.

At present, China is keeping an eye on its lithium supply as well as all the risks that come with the way the material is rapidly becoming one of the most vital aspects of the global transition to sustainable power sources. That said, mining firms need to step up when it comes to profitability through reduced production costs as well as strengthening collaborative ties throughout the industry supply chain.

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