Since the end of 2022, the price of lithium carbonate has been declining, from a high of 600,000 yuan/ton to less than 100,000 yuan/ton, putting pressure on the performance of many lithium mining companies. The significant drop in lithium prices has also sparked curiosity among investors about the cost support level for lithium prices.
In their latest report, Morgan Stanley analysts Zhang Lei and Wang Yujie pointed out that they expect the global lithium market to face an increasing oversupply situation in 2024. Out of the expected lithium mine production of approximately 1.48 million tons of LCE in 2024, about 350,000 tons of LCE correspond to lithium chemical production costs exceeding RMB 80,000/ton (approximately USD 9,800/ton). Among them, about 150,000 tons of LCE are already experiencing losses, with costs exceeding RMB 96,500/ton (approximately USD 11,900/ton).
Morgan Stanley's analysis indicates that the average price of lithium carbonate in China in 2024 is expected to reach USD 13,250/ton (approximately RMB 95,000/ton), with a low point in the second quarter. However, considering the recent price trends and the extent of oversupply in 2024, there is a further downside risk to prices, which could fall to the base case scenario and the pessimistic scenario (USD 8,000/ton) before seeing further supply response and expecting prices to turn upward.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6894249c-9d6c-45fe-92dc-155a6deda66c.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6894249c-9d6c-45fe-92dc-155a6deda66c.png"/>
<h2>Global Lithium Resource Cost Curve</h2>
Morgan Stanley points out that as the global lithium market is expected to experience a larger-scale oversupply in 2024, the cost curve of global lithium resources (especially projects related to Chinese capital) and the cost support issue under different demand scenario assumptions have become the focus of the market:
<blockquote>
We conducted a cost curve analysis of major lithium resources, including: 1. Lithium extraction from spodumene and petalite (Australia, Brazil, Canada, China, and Africa); 2. Lithium extraction from salt lakes (Argentina, Chile, Qinghai, and Tibet in China); 3. Lithium extraction from mica (China).
We only considered the supply of primary lithium resources and did not take into account the impact of inventory accumulation in 2023 (such as lithium spodumene concentrate in Australia and lithium chemical inventory in South America). The cost analysis is mainly based on:
Feedback from our latest on-site visits; channel surveys conducted with company management and industry insiders; the latest quarterly unit production costs of relevant companies and cost guidance for the current and next fiscal year.
</blockquote>
According to Morgan Stanley's analysis, out of the expected lithium mine production of approximately 1.48 million tons of LCE in 2024, about 350,000 tons of LCE correspond to lithium chemical production costs (including raw materials) exceeding RMB 80,000/ton (including VAT) or equivalent to USD 9,800/ton (excluding VAT). Among them, about 150,000 tons of LCE are already experiencing losses based on the current spot prices published by the Shanghai Nonferrous Network, with costs exceeding RMB 96,500/ton (including VAT) or equivalent to USD 11,900/ton (excluding VAT):
In addition, Morgan Stanley stated that there is a potential downside risk to the price of lithium ore in a supply-demand balance:
<blockquote>
On the one hand, considering factors such as ensuring the supply of lithium smelting companies and downstream customers, even if the price falls to the level of cash production costs, some supply may still remain strong.
</blockquote>
<h2>Inventory pressure on the lithium industry chain is also gradually increasing</h2>
Morgan Stanley pointed out that inventory pressure on the industry chain is gradually accumulating, mainly in the following areas: 1. Upstream ore mining and processing; 2. Midstream lithium production; 3. Downstream battery production:
<blockquote>
From the perspective of upstream ore mining and processing, we believe that the concentrate inventory of some lithium spodumene mines has reached a high level, mainly due to weak downstream demand, lagging pricing mechanisms, and some mines unwilling to sell at low prices.
From the perspective of midstream lithium production, according to data from Shanghai Nonferrous Network, as of the end of January 2024, during the traditional off-season, China's lithium carbonate inventory gradually increased to 73,000 tons.
From the perspective of downstream battery production, according to our China Chemicals team's forecast, as of November 2023, China's electric vehicle battery inventory has exceeded 250GWh, and both the absolute scale and inventory turnover days are increasing.
</blockquote>

Morgan Stanley believes that out of the expected lithium mine production of approximately 1.48 million tons of LCE in 2024, one-fourth of the lithium production costs exceed 80,000 yuan per ton. Among them, approximately 150,000 tons of LCE have already incurred losses.

Morgan Stanley: Oversupply of lithium mines will intensify, 80,000 yuan will be an important threshold.