According to China Nonferrous Metals News, since November, lithium carbonate futures prices have undergone accelerated upward momentum followed by broad-range oscillation adjustments. After breaking through the 100,000 yuan/ton mark, the main contract experienced a pullback. Currently, the market exhibits wide fluctuations with intensifying divergences and significant intraday volatility. The main lithium carbonate futures contract gained nearly 20% in November.

Short-Term Fundamentals Provide Support

On the supply side, China's lithium carbonate output reached 95,350 tons in November, up 3,090 tons month-on-month and 49% year-on-year. December production is projected to increase further, potentially hitting a high of 98,210 tons. Partial resumption of previously maintained lithium pegmatite and mica extraction lines, along with contributions from smaller contract manufacturers, drove the increase. Salt lake production may see slight declines due to weather impacts, while recycling volumes decreased marginally.

Lithium ore and salt prices have recently shown tight correlation. With substantial volumes locked under long-term contracts, circulating concentrate supplies tightened, maintaining firm pricing at the mining end.

Statistics indicate that monthly arrivals of Australian lithium concentrate are projected to average around 380,000 tons from November to December, with overall inventories likely remaining low. Should arrivals increase, inventories may see a slight rise. Overall, supply-side certainty remains strong in the short term, with modest growth expected to persist through the year.

During the peak demand season of September-October this year, demand growth exceeding expectations became a key driver propelling the current round of lithium carbonate price increases.

In the power battery market, performance was robust, driven by factors such as accelerated charging station infrastructure development and a “rush to buy” triggered by the impending expiration of new energy vehicle purchase tax incentives.

In the energy storage market, large-scale storage orders surged after the third quarter, with industry feedback indicating cell shortages.

Data indicates that price increases have been smoothly passed down the supply chain during this round of lithium carbonate price hikes.

In November, lithium carbonate demand reached 133,451 tons, up 6,490 tons from October and representing a 42.02% year-on-year increase. December demand is projected to decline slightly to 130,418 tons.

Amid robust cell performance, cathode material output has maintained rapid growth, with leading manufacturers operating near full capacity. Increased orders for electric heavy-duty trucks and booming energy storage demand have kept most material producers at high operating rates. Lithium iron phosphate (LFP) manufacturers saw widening operational disparities, with December output projected at 409,550 tons—a 0.8% month-on-month decrease but a 54% year-on-year increase. December's ternary material production is projected at 78,280 tons, down 6.7% month-on-month but up 37.3% year-on-year.

This year's energy storage market boom has smoothed the demand curve. Industry data and feedback confirm that the demand side has largely avoided the typical seasonal slowdown.

It is worth noting that the power battery market has recently shown signs of weakening. After the penetration rate of new energy vehicles surpassed 50%, there are upper limits constraining further growth, with marginal growth rates slowing significantly. While the strong short-term growth in the energy storage market has exerted some upward pressure on prices, whether this can form sustained support remains to be gradually tested after the first quarter of next year. The current extremely optimistic expectations may have preempted some demand.

Inventory trends indicate that the entire supply chain reduced stockpiles by over 10,000 metric tons in November. Since December, weekly inventory declines have ranged between 2,000 and 3,000 metric tons, partially corroborating robust downstream demand.

Inventory structure shows upstream sectors maintaining overall destocking trends. Downstream material segments began restocking in early August, but since early October, inventories have gradually declined due to ample prior stockpiles and amplified pressure from lithium carbonate price volatility. Battery and other segments have largely maintained stable inventory levels. Given substantial hidden inventories outside the trade segment's sampling scope, spot market feedback indicates significant inventory accumulation, potentially signaling off-balance-sheet inventory pressure.

The earlier strong market performance primarily reflected a resonance between sentiment and fundamentals built upon a “strong reality.” The tight supply-demand balance this year provides solid support for lithium carbonate prices. Going forward, attention should focus on the restart progress of major producers, the release of new projects amid high prices, and demand performance during the off-season. In the short term, inventory drawdowns are expected to continue, though the pace of absorbing both off-balance-sheet hidden trade inventories and visible warehouse receipts may differ from expectations.

Mid-term supply remains in expansion cycle

This year, the global lithium supply side remains in a capacity expansion cycle. By year-end, global lithium carbonate smelting capacity is projected to exceed 2 million metric tons, representing a 26.5% increase from the end of 2024, with domestic smelting capacity surpassing 1.5 million metric tons. Incremental upstream supply primarily began releasing after the third quarter. Supply-side disruptions and resulting expectation gaps mainly manifested as follows: During the first half of the year, when lithium salt prices were declining, some Australian lithium mines experienced production cuts and shutdowns. In the second half, supply stability issues arose from mining rights rectifications for domestic mica and salt lake projects, as well as unrest in countries like Mali, Africa. Overall, the upward trend in lithium supply remains clear. This year, global lithium supply is projected to reach 1.636 million tons, representing a year-on-year increase of approximately 22.1%.

Demand Growth Drivers Undergo Structural Shift

Currently, downstream demand for lithium salts is primarily driven by consumption in lithium battery materials. Over the past five years, new energy vehicle batteries have dominated the demand structure for lithium carbonate, accounting for over 70% of consumption. However, the most significant market shift in the latter half of this year—particularly since the fourth quarter—has been the explosive growth in energy storage demand, which has reshaped the consumption structure of lithium carbonate. By October, the monthly production share of energy storage cells had risen from 23.8% in mid-year to 40.3%. In the medium term, the drivers of demand growth may shift.

The power battery market maintains steady growth overall. Driven by favorable factors such as accelerated implementation of the “Two New” policies, new product launches by automakers, and promotional activities at auto shows across multiple regions, new energy vehicle sales and insurance registration volumes have sustained high growth rates this year, while the inventory-to-sales ratio for power batteries has continued to decline.

The power battery market has maintained steady growth overall. Driven by favorable factors such as the accelerated implementation of the “Two New” policies, new product launches by automakers, and promotional activities at auto shows in multiple regions, new energy vehicle sales and insurance registrations have maintained high growth rates this year, while the inventory-to-sales ratio for power batteries has continued to decline.

Data shows that from January to October, cumulative production of new energy passenger vehicles reached 12.037 million units, up 30.3% year-on-year, while cumulative wholesale sales totaled 12.058 million units, rising 29.9% year-on-year. The retail penetration rate of new energy passenger vehicles stood at 57.2%, an increase of 4.3 percentage points compared to the same period last year.

This year, the highlights in the power battery sector primarily stemmed from the rapid growth in demand for new energy commercial vehicles and heavy trucks, along with the rising share of pure electric passenger vehicles. Performance during the peak season was relatively strong. Before year-end, the expected robust battery production output is mainly driven by the front-loading of consumption ahead of the impending expiration of the new energy vehicle purchase tax incentive policy. However, the new energy power battery market has entered a stable development phase. After the new energy vehicle market penetration rate surpassed 50%, the marginal growth rate has slowed significantly, and the incremental growth space faces constraints. By 2026, weakened domestic policy drivers and potential pressure from U.S. policy shifts may constrain power battery consumption. Growth drivers could emerge from increased battery capacity driven by extended range requirements and demand spurred by improved economics in the heavy-duty truck market.

This year's explosive growth in the energy storage sector is undeniable, with demand expansion being a widely shared market expectation. The divergence lies in whether the energy storage market can establish a more enduring narrative. The fundamental reason for the energy storage market's boom and its current cyclical expectations lies in the improved economics of energy storage projects, shifting demand from policy-driven to market-driven. For an extended period, domestic energy storage was primarily mandatory ancillary equipment for photovoltaic (PV) projects, where investors primarily calculated the overall returns of PV projects, treating energy storage solely as a cost item.

According to the “Notice on Deepening Market-Based Reform of Feed-in Tariffs for New Energy and Promoting High-Quality Development of New Energy” jointly issued by the National Development and Reform Commission and the National Energy Administration, all new PV projects must enter market-based transactions starting January 1, 2026, and will no longer enjoy guaranteed purchase. This exposes PV power generation to the risk of negative electricity prices during daytime peak hours, thereby creating genuine market demand for energy storage. Additionally, the price of upstream raw material lithium carbonate has been in a downward cycle over the past two years. The combined effects of reduced raw material costs and policy shifts have gradually made domestic energy storage projects profitable. In overseas markets, the U.S. Inflation Reduction Act has significantly boosted the profitability of energy storage projects through subsidies like investment tax credits and production tax credits. Historical industry patterns indicate that cost advantages are indeed the key driver for energy substitution. The previous boom in the new energy power market was driven by market-driven expansion fueled by declining electricity costs. Compared to the new energy power market constrained by penetration rates, the energy storage market has a higher ceiling.

Overall, current demand projections remain largely speculative. Only sustained growth beyond Q1 2026 would confirm a cyclical strengthening of demand. Additionally, the supply side remains in a capacity expansion phase. Against a backdrop of persistently high prices, upstream projects are releasing

Overall, current demand expectations remain largely speculative. Only sustained growth in the energy storage market beyond Q1 2026 would confirm a cyclical strengthening of demand. Meanwhile, the supply side remains in a capacity expansion phase. With persistently high prices, upstream projects may accelerate deployment, and the resumption of previously curtailed or suspended projects should also be factored into variable supply considerations. Regarding market dynamics, sentiment remains strong. However, with supply-side capacity set to surge in the first half of next year coinciding with a demand off-season, lithium carbonate prices may undergo downward adjustments. Once demand growth is progressively confirmed, the price center may begin to shift upward.

As an integrated internet platform providing benchmark prices, on December 15th, the benchmark price of battery-grade lithium carbonate, according to SunSirs, was 95,733.33 RMB/ton, an increase of 2.64% compared to the beginning of the month (93,266.67 RMB/ton).

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