Entering the peak season of "Golden September and Silver October" for new energy sales, the production schedule of various links in the lithium battery industry chain has significantly improved.

Industry research shows that the production plan of top lithium battery companies in September saw a significant increase in output, with an expected overall year-on-year growth of 36%. 

The impact and sustainability of the rising production schedule on lithium carbonate prices need to be analyzed in conjunction with the supply and demand structure of the industrial chain.

Improvement of battery, lithium iron, separator, and negative electrode production

Market research shows that in September, the production schedule of major companies in the battery sector showed a year-on-year increase. The month on month growth rate of production scheduling for top enterprises in September is expected to reach 10%, and under optimistic expectations, the production scale may reach 50GWh.

A battery factory has stated that thanks to large-scale energy storage projects overseas, the peak season for domestic tram sales, and the growing demand for new energy commercial vehicles, the company's capacity utilization rate is expected to reach 85% -90% in the second half of the year.

Specifically, the energy storage field has shown multiple benefits, including domestic energy storage exceeding expectations in terms of quantity; The congestion of energy storage grid connection in the United States has eased, while policy uncertainty caused by factors such as the election has prompted companies to stock up in advance; Large scale energy storage projects in emerging markets are centralized and connected to the grid.

Although there has been growth in the field of power batteries, it also faces structural bottlenecks. The intensive release of some hot selling models and low-priced new cars has driven the demand for stocking power batteries. However, the concentration of battery matching for popular car models is relatively high, resulting in incremental orders mainly concentrated in individual supply chain enterprises. In the July new energy vehicle wholesale structure, the proportion of pure electric vehicles has decreased to 53%, which has limited driving effect on the overall lithium battery industry chain. The industry is still waiting for the concentrated release of demand within the year before the expiration of the domestic trade in policy.

Due to the fact that the production increase of battery cell manufacturers is mainly concentrated in the energy storage rather than power battery field, the transmission of demand to cathode material enterprises has shown differentiation. The production of major iron and lithium enterprises in September showed a year-on-year increase, while the production of major ternary enterprises decreased on a month on month basis.

Behind this is also the impact of overseas battery factories completing their ternary material inventory and beginning to shift towards the iron lithium technology route.

At the same time, the production schedule of major enterprises in the separator and negative electrode sectors also showed a month on month increase in September.

Against the backdrop of material prices falling to a low point, relevant enterprises need to improve capacity utilization to spread costs and cope with low prices, in order to restore profitability. At the same time, the increase in production capacity is reflected in the structure, which is also a reflection of the impact of high-performance batteries on the production capacity of high-quality lithium battery materials. It is understood that the utilization rate of related production lines, including high-voltage solid density iron lithium positive electrode, lightweight high porosity separator, fast charging negative electrode, etc., is generally high.

In the medium term, with the rapid increase in the penetration rate of fast charging technology and the acceleration of solid-state battery research and development progress, it is necessary to pay attention to the impact of the new round of "innovation cycle" on the lithium battery industry chain.

Lithium carbonate production is expected to increase, what is the price trend?

The demand for lithium batteries rose in September, but whether the growth rate exceeded expectations remains to be verified by subsequent data and depends on changes in market sentiment. Meanwhile, whether demand growth can be transmitted to the upstream lithium carbonate market, leading to a boost in lithium prices and forming cost support, mainly depends on inventory levels. Only when the procurement volume in the circulation market increases, can the improvement in demand be transmitted upstream in a positive manner.

Finally, although the production of lithium carbonate has decreased, the overall production level is still at a high level. Small scale production cuts do not necessarily mean capacity clearance. The true capacity clearance needs to be traced back to the actual actions taken by the upstream lithium mining end.

On the supply side, the price of lithium carbonate remains low. Research shows that the production schedule of major lithium carbonate enterprises in September is expected to increase month on month, and overall production will continue to be at a high level.

The spot price has fallen to around 70000 yuan, but the upstream production reduction is still not significant, and there is no obvious sign of production reduction; Last week (8.19-8.23), lithium prices briefly surged to 78000 yuan, but failed to receive sustained support and fell back.

From the information disclosed by several lithium companies at the Q2 performance exchange meeting recently, it can be seen that their goal of seizing market share first in the countercyclical period is firm, which is also one of the reasons why prices have not continued to rebound after falling to cash costs.

Referring to the rebound in lithium battery production in the first quarter, which led to a rise in lithium prices to the 110000 yuan range, the corresponding fundamentals have also undergone significant changes.

At the beginning of 2024, the lithium battery industry is facing the challenge of supply-demand imbalance. The market generally expects oversupply, leading to various links in the industrial chain adopting strategies of inventory depletion and capacity contraction. During the Spring Festival holiday and equipment maintenance, the domestic production of lithium carbonate experienced a decline in January and February.

On the demand side, some battery manufacturers made early layouts, which led to a significant increase in the production of positive electrode materials at the beginning of the year, thereby driving the demand for lithium carbonate replenishment to heat up from mid January. This short-term supply-demand mismatch drove lithium carbonate prices to bottom out and rebound at the end of January, and further strengthened after intensified terminal price competition in March.

But with the rapid recovery of lithium salt production capacity in the second quarter, coupled with high inventory of positive electrode materials leading to a decrease in orders, lithium salt market transactions have once again returned to the fundamentals of oversupply. Since May, major battery companies have significantly increased their direct supply of lithium carbonate to positive electrode factories, further reducing their procurement demand. As a result, the price of lithium carbonate has continued to decline to this day.

Nowadays, although the production of "Golden September and Silver October" has increased, the inventory level of lithium carbonate has exceeded 100000 tons, leading to a limited rebound in lithium prices. At the same time, lithium salt factories are still operating at a loss despite price inversion, and the progress of clearing upstream production capacity is very slow.

Represented by lithium salt enterprises that purchase lithium mica ore and spodumene externally, the production of lithium carbonate in these two types of enterprises has entered a loss making stage since mid to late June 2024. In July, some non integrated lithium salt factories were forced to reduce production due to the continuous decline in prices and sales difficulties.

However, the scale of production reduction by these enterprises is still insignificant compared to the overall output. Most loss making enterprises still maintain a certain level of production activities due to various considerations, such as maintaining customer relationships, maintaining production continuity, ensuring employee income, and anticipating the peak sales season of "Golden September and Silver October". Therefore, companies that have completely ceased production are still in the minority.

The problem of overcapacity in lithium carbonate is difficult to fundamentally solve in the short term, mainly due to the fact that most enterprises, relying on sufficient cash flow accumulated in 2022-2023, tend to improve competitiveness through internal cost reduction and efficiency improvement in the face of uncertain prospects for industry restructuring, in order to avoid being eliminated in industry consolidation. Although some companies have started maintenance or suspended production, once there are signs of market price recovery, these companies will quickly resume production.

Based on this, the logic of lithium price trading in the market has shifted from focusing on downstream production scheduling to focusing on supply and inventory changes. Due to the continuous accumulation of inventory, even during peak demand periods, the maintenance of pessimistic market sentiment will still lead to price declines. The industry tends to believe that the formation of a short-term price bottom requires seeing lithium carbonate inventories stop increasing or even begin to decline.

In this context, downstream enterprises of lithium batteries will find it difficult to obtain cost support from the raw material side, and will instead face the risk of provisioning for price decline losses. During the continuous decline in raw material costs, the marginal improvement in demand is still insufficient to support prices. This situation has led to material companies facing a situation where orders are in high demand but not profitable, and there is an urgent need to turn losses around, which has made it even more necessary for companies to maintain their survival by increasing product added value.