BEIJING, July 19 (Reuters)-China’s lithium market, a crucial component in the electric vehicle (EV) revolution, experienced a rollercoaster ride this week. Prices initially plummeted, reaching a seven-month low, but then rebounded sharply on Friday due to a powerful earthquake in Chile, a major lithium producer. However, this price uptick is overshadowed by persistent worries about future demand, creating a complex and uncertain market outlook.
Chilean Earthquake Triggers Supply Jitters
The catalyst for the price rebound was a 7.3-magnitude earthquake that struck northern Chile on Friday. This region holds a significant portion of the world’s lithium reserves, with 90% concentrated in the Atacama desert, located close to the earthquake’s epicenter. As Chile is a major exporter of lithium chemicals to China, the earthquake raised immediate concerns about potential supply disruptions. This fear factor sent the price of the most-traded November lithium carbonate futures contract on the Guangzhou Futures Exchange soaring by 2.9%.
Demand Concerns Cast a Long Shadow
Despite the price surge triggered by supply jitters, demand for lithium remains a major concern. The much-anticipated boom in EV sales, a key driver of lithium demand, has fallen short of expectations in major markets like the US, Europe, and even China, the global leader in EV adoption. This sluggish demand growth is dampening the overall market sentiment.
Furthermore, analyst Zhang Yuan of CITIC Futures added another layer of complexity by highlighting how a potential policy shift in the US under a Trump administration could further dampen demand. President Trump, known for his skepticism towards climate change initiatives, has pledged to roll back many of President Biden’s policies promoting EVs. This could potentially slow down the transition to electric vehicles in the US, a crucial market for lithium consumption.
Supply Boom Creates a Glut
Adding to the pressure on lithium prices is a recent surge in production within China itself. Data from Mysteel shows that China’s lithium carbonate production in the first half of 2024 skyrocketed by 57.4% compared to the same period last year. This rapid production increase has resulted in a growing surplus, pushing prices downward. While higher prices since March 2024 initially encouraged producers to ramp up production, the recent price slump has squeezed their margins. Analyst Zhang predicts a potential decline in output in August as producers adjust to the changing market dynamics.
Major Producers Face Potential Losses
The current market situation is taking a toll on major Chinese lithium producers like Ganfeng Lithium and Tianqi Lithium. Both companies have recently warned of potential losses for the first half of 2024 due to falling lithium product prices. This highlights the precarious position of producers caught between the volatile interplay of supply and demand.
Global Surplus Looms on the Horizon
Adding another layer of concern to the market is the projected global surplus of lithium carbonate for 2024. CRU, a leading research firm, forecasts a surplus of 90,000 tons of lithium carbonate equivalent this year. This surplus, coupled with sluggish demand and potential production adjustments, could continue to exert downward pressure on prices.
Conclusion: A Market in Flux
China’s lithium market is currently caught in a tug-of-war between supply disruptions caused by the Chilean earthquake and lingering concerns about future demand. While the earthquake triggered a temporary price increase, the long-term outlook remains uncertain. Slowing EV sales growth, potential policy shifts impacting demand, and a growing supply glut are all factors that could continue to put downward pressure on prices. The coming months will be crucial in determining the trajectory of the lithium market, with investors and producers anxiously watching how these competing forces play out.
Also read- https://globalbuzznetwork.com/earthquake-hits-chile-magnitude-7-4/