In early May, after a stable period of more than half a year, the price of battery grade lithium carbonate finally warmed up - SMM quoted 76000-79000 yuan / ton of battery grade lithium carbonate, with an average price increase of 1000 yuan / ton compared with the previous period. As for the price increase of lithium carbonate, our analysis is as follows:

1) The price of industrial grade lithium carbonate has been raised, and the increase of raw material cost has led to the rise of battery grade price. At present, about 13% of the battery grade lithium carbonate supplied on the market comes from purified industrial grade lithium carbonate. As we have mentioned many times before, the output and supply of industrial grade lithium carbonate are reduced due to the maintenance of some manufacturers in Qinghai. At the same time, the output growth of downstream materials such as lithium manganate has driven demand, resulting in the phenomenon that "supply exceeds demand". According to the market inquiry, in the middle and late April, the price of industrial lithium carbonate increased by 1-2000 yuan / ton. The price of battery grade lithium carbonate using this as raw material was raised in consideration of the increase of raw material cost.

2) The supply of lithium carbonate for ore smelting process is limited, the release of new capacity is less than expected, and the existing supply is reduced due to the impact of maintenance. Although the new capacity of lithium carbonate has mushroomed in 2019, few of them have been successfully commissioned and put into operation. According to statistics, up to now, only the 17500 ton project of Ganfeng lithium has truly realized the new / expanded capacity. In addition, the routine maintenance of Tianqi lithium in April has a significant impact on the supply of battery grade lithium carbonate produced by ore smelting (according to our estimation, Tianqi lithium's market supply share in battery grade lithium carbonate is about 32%).

3) The output of lithium iron phosphate and lithium manganate increased, driving the strong demand for upstream lithium carbonate. According to our statistics, the output of lithium manganate increased by 106% month on month in March, and continued to increase by 16% month on month in April, reaching 5200 tons. The output of lithium iron phosphate increased by 38% month on month in March, and continued to increase by 30% month on month in April, reaching 8500 tons. In terms of the prices of lithium iron phosphate and lithium manganate, lithium manganate has dropped by 2000-3000 yuan / ton since the Spring Festival, and lithium iron phosphate is even worse. The average price has dropped from 57500 yuan / ton to 50000 yuan / ton, a drop of nearly 15%. In consideration of cost, some of these cathode material manufacturers began to purchase industrial grade lithium carbonate, thus driving the growth of demand for industrial grade lithium carbonate.

4) Since March, downstream rush loading has started in succession, and the terminal demand is "ahead of schedule". Considering the transition period of new energy subsidies (from March 26, 2019 to June 26, 2019), there is a rush for loading in the downstream, which will drive the purchase demand in the upstream. This wave of rush loading actually began in early March 2019, and we expect it to last until late May. For the future, we believe that the lithium carbonate price rise is a short-term repair, and the room for rise is limited. The price inflection point may appear at the end of the second quarter and the beginning of the third quarter.

The reasons are as follows.

1) In terms of supply, it was not known in May that any lithium carbonate production enterprise had an overhaul plan, and the enterprises that had previously overhauled all resumed normal supply. We predict that the national output of lithium carbonate in May will be 13900 tons, an increase of 20% over April. As far as we know, the output of several large lithium carbonate production plants, including Lanke lithium, is expected to increase significantly after June.

2) In terms of demand, according to our statistical data, compared with April, the output of cathode materials in May is expected to be basically flat. Furthermore, in the next 1-2 months, the rush loading in the downstream will gradually come to an end, the purchase demand in the upstream will return to flat, and the previous situation of "short supply of lithium carbonate" will gradually ease. In addition, the downstream has a limited range of raw material costs, which is also the reason why we think there is little room for growth.

In conclusion, we believe that this price fine-tuning is not because the supply and demand has reached the inflection point and began to release the "rising signal", but only because of the price callback fluctuation affected by events, which is in line with the market flexibility of small metals. In the long run, we still hold the previous bearish view that lithium prices will gradually decline in the second half of 2019. However, in view of the relationship between the current lithium salt price and the average production cost of the industry, we believe that there is limited room for decline, which will take the form of a negative decline.

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