China Lithium Futures Fall 11.8% on Demand Concerns, Proposed Car Import Limits
Key Facts
The most-active lithium carbonate contract on the Guangzhou Futures Exchange ended daytime trading on October 12 down 11.8% at 104,740 yuan per tonne, according to Reuters, amid doubts over the outlook for lithium demand. The decline coincided with a European proposal to restrict hybrid car imports, details of which Bloomberg reported from a document it reviewed. Orient Securities analysts said in comments cited by Reuters that "market participants are questioning the outlook for lithium demand." On the supply side, speculation surrounding CATL's Jianxiawo mine also weighed on investor sentiment. The speculation concerned a possible restart of the mine, according to Reuters, adding to the demand concerns cited by the brokerage's analysts in explaining market sentiment.
According to the document reviewed by Bloomberg, the European proposal caps Chinese hybrid car imports at 350,000 vehicles in the first year of implementation. The proposal allows this quota to increase by 6% annually from the second year, as part of a path to raise the cap over the duration of the measure. The proposed safeguard measure would last 4 years, according to details reported by the agency and carried by Moneycontrol. The quota system covers hybrid car imports from all origins, with a specific allocation for Chinese cars within that system. Bloomberg said including imports from different origins was intended to comply with the World Trade Organization's non-discrimination principle, which underpins the scope of the proposed quotas.
The proposed European move follows growth in the value of Chinese hybrid car exports to the European Union during the first half of the year, according to Chinese customs data cited by Reuters. Those exports were worth $7.5 billion, compared with $2.5 billion in the same period a year earlier. First-half export value thus reached 3 times its year-earlier level, according to the comparison in the customs data. Plug-in hybrid cars are exempt from the additional tariffs the European Union imposes on Chinese electric vehicles, according to Reuters. This exemption encouraged Chinese manufacturers to increase their focus on plug-in hybrids in their trade with the European market, with Chinese electric vehicles subject to additional tariffs.
In the spot lithium market, S&P Global said demand remained strong during the third quarter, supported by battery production and buying on price declines. Its report described demand during that period by saying that "spot demand remained strong in the third quarter." Support from battery production coincided with purchases that took advantage of lower prices, among the factors the firm cited to explain the strength of spot demand. During September, market pressure resurfaced after a data provider expanded the sample it uses to track inventories, according to the same report. The expansion of the data provider's coverage led to a jump in reported inventories, which S&P Global said contributed to the pressure the market experienced that month.
On supply, S&P Global listed the resumption of Australian spodumene production among factors that could increase supply and weigh on lithium prices. The reference to Australia concerned the return of production, while the firm's report also discussed expected raw material shipments from Zimbabwe. The firm expected those Zimbabwean shipments to weigh on lithium prices in Asian markets later in the final quarter of the year. It linked its price outlook to the arrival of the expected raw materials, alongside the resumption of Australian production that it cited among factors increasing supply. These potential supply developments coincide with speculation about China's Jianxiawo mine, with its restart remaining a possibility that has affected investor sentiment, according to Reuters.
Implementation of the European arrangements remains contingent on European Union leaders approving the preliminary agreement, according to the Associated Press's account of the step required for its adoption. Bloomberg said the safeguard measure could take effect as early as December 1, with that remaining a possible implementation date. The start of the quota system is therefore linked to the approval process for the preliminary agreement described by the Associated Press, alongside the potential timeline reported by Bloomberg. On a later date concerning battery exports, S&P Global reported that the value-added tax rebate on lithium-ion battery exports would be abolished. The firm specified January 1, 2027 as the date for abolishing the tax rebate on these exports, among forthcoming developments in the battery sector.