With prices of lithium carbonate, a key commodity used in making batteries of electric vehicles (EVs), declining by 67 per cent year-on-year, some of the Chinese refining companies have begun to cut production or suspend operations.

As the battery material prices drop, the losses of Chinese producers have increased. Due to this, some of the firms have stopped from resorting to sharp cut in prices and have resorted to either production cut or suspend operations, Shanghai Metal Market (SMM) news said. 

May slow fall

Currently, lithium carbonate prices are ruling at 165,000 Chinese yuan ($23,123.39) a tonne, a two-and-a-half year low due to low demand. The production cut will likely slow down the fall in lithium carbonate prices. 

Battery making companies for EVs have, on the other hand, paused buying from the start of the third quarter as their inventories have built up and the funds that the Chinese government gave have dried up, said the Trading Economics Website.

Demand for EVs is subdued in China as consumer spending has been affected in view of its economic problems. According to reports, at least 10 Chinese EV producers have cut prices to cut their inventories. In turn, this has dragged battery prices and lithium carbonate rates. 

Compounding woes

The European Union’s move to launch a probe into predatory pricing by Chinese vehicle manufacturers has compounded the problems. 

Data showed that China’s lithium carbonate imports decreased four per cent year-on-year to 10,843 tones in August.

Amidst these developments, major Chinese lithium producer  Zhicun Lithium has stopped production to “overhaul  some equipment from September 29 to October 25”. This will cut lithium output by 3,000 tonnes this month.  

The Australian Office of Chief Economist (AOCE), in its Resources and Energy Quarterly said lithium prices will decrease as the market enters a period of surplus production. 

“In 2023, prices have fallen significantly as the market swings from deficit to being in balance. The high prices in 2021 and 2022 incentivised more investment in lithium production, resulting in global supply catching up to demand,” the AOCE said . 

High prices in 2021 and 2022 drove companies to destock and reduce the cost of carrying inventory — putting further downward pressure on prices. 

More drop likely

“Prices are forecast to fall further by 2025 as the lithium market enters a period of surplus supply, and is expected to result in rising stockpiles,” it said. However, prices are expected to remain well above levels traded in the few years prior to 2021, the Australian Office of the Chief Economist said.

Australia leads global lithium extraction and it accounted for 51 per cent of the world output in 2022.

Research agency BMI, a Fitch Solutions Union, said elevated prices over the coming five years will continue to be the main driver of higher battery technology capital expenditures, driving developers to adopt new deployment strategies.

“Of all the metals, we expect lithium to have the strongest impact on the cost of battery energy storage systems and as prices for lithium fall in the medium-term they will reduce risk to consumers,” it said.