Chinese Lithium Price Dives In Heated Auto Price War

China's lithium prices are plunging faster than expected this year, down 34% in the last four weeks alone, hit by a slump in demand for electric vehicles in the world's biggest market that has left stocks of the metal piling up.

Spot lithium carbonate prices assessed by Fastmarkets fell to 260,000 yuan ($38,079.06) per tonne this week, less than half the price quoted last November.

Though prices have been falling since late last year, the decline has accelerated in the last four weeks, exceeding the 22% drop during the three months from November to February.

Five analysts polled by Reuters last month had expected the price would drop to 300,000 yuan by the end of this year.

"The scope of such a price fall has exceeded our expectations," consultancy Rystad Energy said in a March 17 note.

The world's biggest EV market was already facing slowing demand after China cut subsidies to the sector from this year.

Now EVs are also facing fierce competition from conventional vehicles after carmakers, including SAIC Volkswagen Automotive Co and Geely Automobile, slashed prices on more than 40 brands ahead of stricter emissions rules taking effect on July 1.

Traditional car makers and dealers are cutting prices to clear inventories of vehicles that do not meet the new standard.

"The unprecedented price cuts among traditional auto makers will eat EVs' market share in the short term, hitting lithium demand further," said Vicky Zhao, a Beijing-based senior analyst at Fastmarkets.

The price war in China's car market, escalating from EVs to internal-combustion-engine vehicles (ICEVs), will potentially last through the second quarter, and the entire supply chain is likely to share the profit losses this year, said Jing Yang, Director of Asia-Pacific Corporate Research at Fitch Ratings.

Supercharged in the past two years by strong demand for EVs and limited supply, lithium prices had soared more than 10 times from early 2021 to a record 597,500 yuan last November.

Waning demand for EVs in recent months is being exacerbated by mounting supplies of the metal.

Readily available stocks in the market are likely in the tens of thousands of tonnes, compared with barely any stocks in the market last year, according to Rystad and Fastmarkets.

Lithium prices in the United States and Europe have also fallen, albeit less sharply, amid rising but still tight supplies and a stronger outlook for EV sales.

Lithium carbonate prices in Europe and the United States have declined to $61.50 per kg on March 16, down 24% from a peak of $81 per kg late last year, according to Fastmarkets.

($1 = 6.8279 Chinese yuan renminbi)