China’s lithium market is experiencing a revival due to increasing sales of electric vehicles (EVs) and the growing demand for batteries used in energy storage. However, analysts caution that despite this recovery, the supply of lithium is expected to surpass the improving demand.
Over the past two months, spot lithium carbonate prices in China have nearly doubled, reaching 317,500 yuan ($44,146.27) per metric ton last week, according to Fastmarkets. This surge in prices can be attributed to the surge in EV sales in the world’s largest market for electric cars.
Earlier this year, the demand for lithium had declined as Beijing discontinued its national subsidy for EVs, and conventional automakers lowered their prices to counter slow consumption. However, with the recovery of EV sales, coupled with government support measures, orders for lithium have increased.
Data from the China Passenger Car Association reveals that in May, the production and sales of EVs witnessed year-on-year growth of 53.7% and 71.2% respectively. This positive trend has prompted cell manufacturers to increase their orders for cathode materials, while cathode producers have moderately extended their inventories of lithium carbonate.
According to Susan Zou, a vice president at Rystad Energy in Shanghai, EV sales in China are projected to grow by 15% this year and by an additional 30% next year, supported by new measures announced by Beijing, including tax exemptions. Yang Jing, director of China Corporate Research at Fitch Ratings, suggests that these measures will enable EV brands to maintain competitive pricing strategies and gain market share throughout the year.
The demand for lithium is not only driven by the EV sector but also by the rapidly growing energy storage sector, which represents the second-largest user of lithium batteries. China, in particular, is witnessing significant growth in this area, as the government has set a target to install over 30 gigawatts of new energy storage capacity by 2025, marking a 230% increase from 2022.
Zou explains that the energy storage market’s expansion is driving the increased demand for lithium iron phosphate (LFP) batteries and cathode materials, consequently putting pressure on the price of lithium carbonate.
Despite the recent rebound in prices, analysts do not expect it to be sustained. Zou predicts that the average price of lithium carbonate in China this year will be around 300,000 yuan per ton. Chen Junquan, chief of the multivariate business research section at China Minmetals Economic Research Institute, believes that the growth witnessed in May, influenced by short-term policy support, is unlikely to endure, and lithium prices may drop below 200,000 yuan per ton within this year.
Moreover, the anticipated increase in global production capacity will further contribute to downward pressure on prices, according to Chen and other experts. Zou forecasts that prices could decline to approximately 210,000 yuan per ton by next year.
To mitigate dependence on lithium and explore alternatives, manufacturers are actively developing new batteries that utilize cheaper materials such as sodium. These alternative solutions may serve as substitutes for lithium in the long run.
