Prolonged Price Slide Punishes China’s Lithium Hub

Yichun, dubbed “the lithium capital of Asia,” has faced a significant downturn due to a supply glut of lithium carbonate, a crucial material for electric vehicle (EV) batteries. This glut has led to a drastic drop in prices, severely impacting Yichun's lithium industry. [para. 1] [para. 3]

In recent times, many processors and producers in Yichun's lithium sector have had to reduce or shut down production to mitigate losses. This scenario starkly contrasts with the boom of 2022, when increasing demand for state-subsidized EVs led to skyrocketing lithium prices. [para. 2] The oversupply of lithium carbonate production soon surpassed EV demand, causing prices to plummet. [para. 3]

The spot price of lithium carbonate has experienced a dramatic fall, dropping from a high of 590,000 yuan per ton in November 2022 to just 74,000 yuan per ton as of a recent Tuesday, according to OilChem China data. [para. 4]

Lü Jun, director of Yichun’s lithium battery new-energy industry development center, stated that companies face tough decisions when lithium prices drop to 90,000 yuan per ton, forcing many to reduce or halt production. [para. 5] A business source indicated that many companies had invested in new plants in 2022, but most of these were shut down by July of this year, some within less than a year's operation. [para. 6]

The city government acknowledged that the crashing lithium prices and production halts have adversely affected Yichun's lithium industry. As of the end of 2022, Yichun held around 5.74 million tons, or 28%, of China's total lithium reserves. Despite this, the industry's total revenue fell by 14.41% year-on-year to 30.6 billion yuan in the first five months of this year, with profits plunging 81.48% to 757 million yuan. [para. 8]

Half of Yichun's lithium producers have slashed output due to plummeting prices and high raw material costs. Up to 40% of the city’s lithium carbonate companies are currently inactive, according to Lü. [para. 9] For companies without their own mining resources, operational activities have nearly come to a halt. Wu Li, general manager of Jiangxi Lingneng Lithium Co. Ltd., confirmed the company ceased production this year after failing to achieve profitability when lithium carbonate futures prices fell below 100,000 yuan per ton. [para. 10]

An adjacent lithium salt producer completed its plant in August 2023 but has not started production due to the severe drop in lithium carbonate prices. [para. 12] However, companies with their own mines are relatively better off. They can maintain production costs between 60,000 and 70,000 yuan per ton, as per Fan Runze, a senior industry analyst at Beijing Antaike Information Co. Ltd. [para. 13]

For instance, a joint venture between Contemporary Amperex Technology Co. Ltd. (CATL) and Jiangsu Lopal Tech Co. Ltd., which owns Yichun’s largest lithium mica mine, remains relatively unaffected and is even ramping up production to meet CATL’s downstream demand and prepare for a future price rebound. [para. 14][para. 15] Xie Yichao, a senior executive of the venture, views the current scenario as a normal market correction after the previous spike in prices and believes that long-term demand for lithium will continue to grow due to the government’s focus on energy transition. [para. 15][para. 16]

Many industry insiders predict that the price slump will persist for another one to two years. Lü forecasts a wave of lithium producers will be forced out of the market by 2025, with a potential market rebound the following year. [para. 17]