Guotai Junan: Lithium prices continue to decline with signs of a bottoming out.

Guotai Junan released a research report stating that although lithium prices will continue to be under pressure in Q4 2024, it is difficult to see a significant increase in prices. However, the market has entered the bottom range. The pace of market recovery depends on the speed of end-consumer demand recovery. Companies worth investing in the future should have advantages such as low costs (leading in controlling resource costs), high production expansion certainty (already in the growth stage with clear future production release), global supply chain layout (optimizing costs and market risks), and financial stability (sufficient cash flow to withstand cyclical fluctuations). Overall, the lithium market is expected to gradually move towards balance in the next one to two years. With the growth of electric vehicles and energy storage markets, optimism is maintained for the reversal in the long-term lithium carbonate prices. However, companies need to address cost pressures and uncertainties in the external environment as they rebuild their foundations. Guotai Junan's key points are as follows: Mine production is decreasing, inventory turning point is appearing. In 2024 Q4, Australia remains the largest lithium supplier in the world, but quarterly production decreased by 6.4% year-on-year and 5.9% quarter-on-quarter, mainly due to maintenance of some mines, proactive production reductions, and adjustments in market strategies. However, the entry into production of some new mines has brought incremental supply and optimized the supply structure. North American lithium mine production decreased in the fourth quarter. On the other hand, in 2024 Q4, several new projects have made breakthroughs, with Australia's Kathleen Valley, Pilbara Minerals, and South America's Centenario salt lake and Hombre Muerto West entering the production and expansion stage. However, some companies have reduced the scale of expansion due to funding issues, resulting in production volumes lower than expected. Globally, lithium supply growth in Africa is fast, with a significantly increased share in China's lithium concentrate imports, becoming an important source of lithium supply growth in the market. On the inventory front, Australian lithium mine inventories have decreased by approximately 0.94 thousand tons, indicating a turning point in inventory levels. Lithium prices continue to exhibit a downward trend, showing signs of bottoming out, with low costs having risk-resistance advantages. Mainstream Australian 6% spodumene concentrate prices fluctuate within the range of $700-800 per ton. Lithium carbonate and lithium hydroxide prices saw a significant decline throughout the year due to oversupply in the early period, but stabilized in Q4. Supply-demand adjustments are underway, and the market expects a gradual recovery in 2025. Faced with fluctuating lithium prices, companies are generally implementing cost reduction measures to maintain profitability. Companies have different sales models, with some relying on stable long-term contracts and others flexible adjusting contract mechanisms. High-cost mines are under significant operational pressure, with some already suspending production. Low-cost producers have prominent risk resistance capabilities: for example, the Atacama salt lake in Chile and some salt lake projects in Argentina have total costs in the $5,000-6,000 per ton LCE range, ranking in the first quartile of the global cost curve. Long-term demand remains robust, high interest rates limit expansion, and fluctuations in the US dollar exchange rate have varying impacts. Global lithium demand continues to grow in 2024, with the expansion of the new energy vehicle and energy storage industries being the main drivers. Overall, the long-term demand for the lithium industry remains robust. In terms of policies, major lithium-producing countries are tightening industry regulations: Chile is strengthening the nationalization of lithium resources, while Argentina is adopting more market-oriented stimulus measures. High inflation and high-interest rate environments have increased financing costs for lithium mining companies, with some projects facing financing difficulties. The strengthening US dollar has different impacts on lithium exporting countries, benefiting Australian lithium mines due to US dollar pricing, while Latin American companies face some pressure due to currency depreciation. Risk warnings: New energy vehicle growth may be slower than expected, battery technology iteration risks, lithium mining companies face financing and funding pressures.