Lithium carbonate production is steadily recovering with significant build-up in inventory. Demand is also picking up, but the supply increment is expected to be more significant as we move into Q2.
The Armchair Trader met with China’s SMM (Shanghai Metals Market) last week to discuss the prospects for the lithium carbonate market in 2025. Lithium carbonate is a critical ingredient in the manufacture of batteries in electric vehicles, and this sector will underpin demand. Hence, analysts remain very focused on the sale of EVs.
China EV demand set to increase
SMM monitors the critical Chinese lithium carbonate market in Asia, with the biggest team of analysts on the ground in China itself, and reckons that demand for EVs in China will help to offset a potential slowdown in demand in Europe and North America.
According to SMM, in mid to late January downstream material plants in China were still in the pre-Chinese New Year stocking phase, with a low signing ration. Downstream material plants were still procuring spot lithium carbontate. Additionally, some upstream lithium chemical plants began production line maintenance.
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It is important to recognise the dominance of China in the lithium carbonate market. China is the biggest consumer as well as controlling a significant portion of the refining capacity for lithium carbonate (an estimated two thirds). Demand is being powered by the country’s EV manufacturing and electronics sectors.
SMM actively monitors downstream demand for lithium carbonate in China, which is in turn the key driver in international prices for the commodity. This can also influence the price of shares in the lithium mining sector.
The Chinese New Year holiday is taken an as opportunity by many factories in China to perform essential maintenance and upgrades. SMM said in its analysis that it expects demand to pick up as we move into the spring and these factories all come back online.
What other factors help to move the lithium price?
Other factors in the price include the amount of lithium carbonate being shipped from producing countries. SMM has noted an uptick in shipments to China from key producers Argentina and Chila over the course of Jan/Feb.
Key factors to watch include the current policy stimulus measures in China and ongoing changes in the country’s automotive transport infrastructure. In particular there is increasing spend in the area of intelligent driving which is likely to offset a downturn in EV vehicle sales elsewhere and the impact of new US tariffs. SMM has revised its forecast of Chinese automobile sales upward for 2025.
Lithium spot price expected to be more active in Q2
Currently there is downward pressure on spot lithium carbonate prices, caused by the increase in supply. The proportion of long-term contracts signed between upstream and downstream players in 2025 is decreasing, which SMM believes will make the sport market more active. Lithium chemical plants in China are adopting a firm stance in terms of quotes, which may provide some support to the price as we move into the summer months.
SMM analysts also warned that the futures market is creating a level of uncertainty in the lithium carbonate price. Influenced by spot futures price spread fluctuations, the inflow or outflow of warehouse warrants is driving volatility in spot prices in this market.
During sudden market movements, lithium carbonate futures are being easily magnified by sentiment at the moment, in turn boosting spot price trends which are deviating from the supply and demand fundamentals, SMM said.
