Rising sales of electric vehicles (EV) as well as batteries for energy storage are driving a recovery in China's lithium market, but growing supply of the metal will still outpace improving demand, analysts said on Wednesday.
Spot lithium carbonate prices in China nearly doubled in the last two months to 317,500 yuan ($44,146.27) a metric ton last week, according to pricing agency Fastmarkets, after a pick-up in electric vehicle sales in the world's biggest market.
Demand for the metal had slumped early this year, as Beijing ended its national subsidy for EVs and traditional auto makers slashed their prices to offset sluggish consumption.
But orders for lithium have picked up as EV sales improved, helped by government support measures.
Production and sales of EVs in May grew by 53.7% and 71.2% respectively year-on-year, data from the China Passenger Car Association showed.
"Cell manufacturers increased their orders of cathode materials and cathode producers increased moderately the lead time of inventories of lithium carbonate," said Susan Zou, a Shanghai-based vice president at consultancy Rystad Energy.
EV sales in China are expected to grow 15% this year, said Zou, and by 30% next year, boosted by additional new measures outlined by Beijing on Wednesday, including tax exemptions.
The measures will allow EV brands to maintain aggressive pricing strategies this year for market share, said Yang Jing, director of China Corporate Research at Fitch Ratings.
Demand from the energy storage sector, the second biggest user of the battery metal, is also growing rapidly.
Much of the growth is occurring in China, where the government set a target in 2021 for installed new energy storage capacity to exceed 30 gigawatts by 2025, increasing about 230% from 2022.
"We are seeing the energy storage market is boosting capacity expansion of LFP (lithium iron phosphate) batteries and cathode materials, which in turn sends pressure to the price of lithium carbonate," Zou said.
Analysts see the recent rebound as short-lived. Zou expects the lithium carbonate price in China to average 300,000 yuan a ton this year.
"The recent price rally was primarily driven by restocking," said Chen Junquan, chief of multivariate business research section at state-backed China Minmetals Economic Research Institute.
"The May growth seen in the auto market, boosted by short-term policy support, is unlikely to last and lithium prices might fall below 200,000 yuan within this year," he added.
More production capacity coming online globally will also weigh on prices, said Chen and others.
Prices will likely fall to around 210,000 yuan a ton by next year, said Zou.
Manufacturers are also racing to develop new batteries using cheaper materials like sodium, which could serve as alternatives to lithium in the longer term.
($1 = 7.1920 Chinese yuan renminbi)
