This week, lithium prices continued their mid-range downward trend with wide fluctuations. The intense market tug-of-war stems from a divergence in expectations among various participants, compounded by persistent supply-side disruptions in the Jiangxi region. The market narrative is defined by increasing warehouse warrants, a substantial mid-term inventory drawdown, and a clear long-term supply outlook coupled with decelerating demand growth. The combined destocking across the market in August and September is estimated at roughly 40,000 tonnes. While prices found support in Q3 after being oversold, the prospect of high profit margins incentivizing supply release and the marginal slowdown in demand growth paint a grim picture for next year.

Given this landscape—ample near-term spot supply, a significant mid-term destocking phase, and an anticipated loose supply-demand balance in the long run—trading the January contract has become exceptionally challenging. High-frequency data indicates a gradual recovery in spodumene production, with volumes from previously constrained or maintenance-hit operations rebounding. To sustain the price platform around 160,000-170,000 yuan per tonne, robust demand and continued inventory drawdowns are essential. Such conditions would strengthen the basis for second and third-tier brands or older material, potentially allowing prices to test the late-June trading range. Failure to do so would push prices back into a downward channel.

Supply: Neutral

This week, total output increased by 801 tonnes to 23,808 tonnes, a month-on-month rise of 3.5%. Within this, spodumene-based lithium carbonate production rose by 234 tonnes to 12,490 tonnes (up 4.7% MoM), while lepidolite-based output fell by 150 tonnes to 2,612 tonnes. Salt lake lithium carbonate production, however, decreased by 3.7% to 5,646 tonnes.

Demand: Neutral

Short-term demand projections for H2 show divergence. Wholesale vehicle sales continue to see robust growth, and European electric vehicle monthly registrations have again surpassed expectations. In the energy storage sector, July installations showed a month-on-month and year-on-year recovery, but cumulative figures for the year remain negative. The slower-than-expected installation pace has sparked concern, although tender data continues to show rapid growth. Whether the energy storage sector meets its H2 expectations will require cross-validation through installation volumes and storage battery production/sales data. Regarding production scheduling, August is projected to see a 7-8% month-on-month increase in lithium battery output and a 5-6% increase in cathode material output.

Inventory: Neutral

This week continued the destocking trend. According to SMM sample data, inventories fell by 4,745 tonnes to 61,632 tonnes (down 7.15% MoM). The larger sample pool saw a decrease of 7,590 tonnes to 86,392 tonnes (down 9% MoM). This breaks down to smelters reducing inventories by 1,358 tonnes to 10,128 tonnes, downstream users cutting by 4,417 tonnes to 31,098 tonnes, and other segments adding 1,030 tonnes to reach 20,407 tonnes.

Profitability: Neutral

Lithium concentrate prices tracked the fluctuations of lithium carbonate this week, with toll-processing margins for externally purchased ore remaining relatively stable. Currently, integrated lepidolite operations have cash costs around 60,000 yuan per tonne, while some technologically advanced smelters achieve cash costs near 55,000 yuan. Both port and mine inventories of lithium concentrate have been declining recently. Future focus will be on whether miners continue to hold firm on pricing.

Macro: Neutral

Key macro factors include expectations of US interest rate hikes and balance sheet reduction, the promotion of new energy storage development under the 15th Five-Year Plan, and the continuation of the "two new" policies with a broader subsidy scope. The NDRC and Ministry of Finance have issued measures to intensify support for large-scale equipment upgrades and consumer goods trade-ins. Additionally, the upcoming US presidential election brings the risk of increased tariffs on China's dominant new energy industries under a Trump administration.

High-frequency weekly data covers lithium carbonate production and operating rates, alongside inventory and profit metrics. On the supply side, regular monthly data shows domestic lithium concentrate production, though small in volume, is maintaining high growth rates. Since Q1, lithium concentrate production and sales have remained basically stable. Marginal declines are seen in lepidolite output, while lithium hydroxide imports are also monitored.

Demand-side data tracks cathode material production, with midstream operating rates remaining stable. Production profits for cathode materials continue to show losses, and negotiations between mid and downstream players over long-term contract discounts remain contentious. Terminal demand is assessed through battery production and shipments, vehicle production and sales data, commercial vehicle inventories, and EV registrations in Europe and the US. In the energy storage sector, bid prices have been trending down this year, despite a noticeable increase in tender volumes.