A recent research report from CITIC SEC indicates that last week's sharp decline in lithium prices was primarily triggered by adjustments in the statistical scope and sample methodology of SMM's lithium carbonate inventory data, which resulted in a substantial weekly inventory increase. This is not a reflection of a fundamental deterioration in the industry. The firm anticipates that the recovery in lithium battery production schedules for September will generate considerable demand growth, and as overseas supply increases fail to match this demand pace, the industry's supply gap is likely to widen further.
According to Wind data, the main lithium carbonate futures contract fell 9.0% last week to 142,000 yuan per ton, with significantly amplified volatility. CITIC SEC attributes this decline to an update in inventory data from the third-party consulting firm Shanghai Nonferrous Metals Network (SMM). On September 4th, SMM reported a new lithium carbonate inventory figure of 169,300 tons, a sharp contrast to the 75,700 tons reported the previous day under a broader sample. This near-100,000-ton surge in reported inventory fueled pessimistic sentiment in the market, leading to panic selling and a steep price drop.
CITIC SEC believes that inventory data from a single institution may contain research biases, noting that adjustments to inventory caliber and sample sets are common in the industry. Factors such as changes in sample coverage, current statistical scope, calculation methods, estimation models, retroactive revisions of historical data, and whether the statistics include factory and in-transit inventory should all be considered. The short-term data anomaly does not signify a major shift in supply-demand fundamentals and is likely the result of iterative changes to statistical rules.
The firm suggests analyzing the situation by combining inventory figures with recent supply and demand data. According to estimates from Dadong Times Think Tank, global lithium battery production is set to increase by 9.1% month-on-month in September, which CITIC SEC calculates would correspond to an additional demand of 15,000 tons of lithium carbonate equivalent (LCE). On the supply side, increases are expected from a rise in lithium concentrate arrivals from Zimbabwe. With smoother shipping for companies like Sinomine Resource Group, lithium salt supply is forecast to grow by 8,000 to 10,000 tons LCE month-on-month. Consequently, the supply shortage is expected to intensify in September, leading to an increase in lithium carbonate destocking and maintaining the current trend of inventory reduction.
CITIC SEC argues that the true inventory levels in the lithium carbonate industry have been difficult to confirm, largely due to challenges in measuring hidden salt inventories by consulting agencies like SMM. However, as the futures market matures, a portion of this hidden inventory is gradually being revealed through hedging activities. The registration data for lithium carbonate futures warrants can, to a certain extent, reflect changes in hidden stocks. By combining data on upstream and downstream inventories, trader stockpiles, and futures warrants, one can effectively gauge the overall inventory trend across the industry chain. Furthermore, as the lithium industry becomes more sophisticated, the accuracy of inventory statistics will improve, potentially reducing the frequency of sudden inventory fluctuations.
Ultimately, commodity prices are determined by long-term fundamentals and macroeconomic trends, not short-term inventory changes. Looking back at the recent upward cycle for lithium carbonate, weekly inventory increases failed to reverse the upward price trend during periods of rapid growth expectations for lithium battery demand and frequent supply disruptions. Conversely, in phases of weaker demand outlook, lithium prices continued to fall despite sustained weekly inventory reductions. Therefore, CITIC SEC concludes that single-week inventory anomalies do not reflect medium-to-long-term trends. Investment decisions should be based on monthly-level trend changes combined with industry data to avoid being swayed by high-frequency noise that can obscure core investment logic.
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