Since the beginning of 2026, the lithium carbonate futures market has experienced pronounced price volatility. After retreating from elevated levels in late January, prices bottomed out in late February and staged a rebound. On February 25, the main continuous lithium carbonate futures contract closed at $24,493 per tonne, up 5.66% on the day, with trading volume reaching 152,006 lots. Market sentiment has gradually shifted from panic-driven liquidation back toward rational pricing. This sharp price swing was not driven by a reversal in industry fundamentals, but rather by a confluence of macro liquidity conditions, regulatory developments, and short-term news flows. Considering the industry’s supply-demand dynamics, trading data, and long-term structural trends, the recent wave of sentiment-driven selling is largely complete. First-quarter fundamentals remain solid, presenting an attractive entry opportunity on price dips. Meanwhile, the approaching inflection point in the long-term capacity cycle further underscores lithium carbonate’s structural value.
Market Volatility: Speculative Positions Cleared, Prices Return to Rational Levels
The recent downturn in lithium carbonate prices was not triggered by any material deterioration in supply-demand fundamentals. Instead, it resulted from the combined impact of three external factors, which prompted a concentrated withdrawal of speculative capital. From a trading perspective, open interest in lithium carbonate futures declined from over 1 million lots at its peak to around 600,000 lots, a more neutral level. Since February, trading volume has first contracted and then rebounded. Between February 4 and February 10, daily volume fell below 300,000 lots, reflecting effective suppression of speculative activity. The simultaneous rise in both price and volume on February 25 signaled the beginning of a sentiment recovery.
At the macro level, a long-position squeeze in precious and base metals triggered cross-market risk contagion. As one of the previously crowded long trades, lithium carbonate became a primary target for speculative capital unwinding. On the regulatory front, exchanges and authorities intensified scrutiny of related accounts, directly curbing excessive speculation. VIX declined in tandem, and market structure improved. From a news-flow perspective, Chile’s lithium salt exports to China surged both month-on-month and year-on-year in January, raising short-term concerns about oversupply. However, industry surveys indicate that the spike reflected front-loaded shipments ahead of the Chinese New Year, rather than a structural increase in supply. The sustainability of such elevated export levels is limited, and import data are likely to normalize in subsequent months.
In terms of price action, lithium carbonate futures fell from $24,154 per tonne on January 28 to $19,305 per tonne on February 6, briefly touching a low of $18,027 per tonne before rebounding to $24,492 per tonne by February 25. With both open interest and volatility stabilizing, the most intense phase of sentiment-driven liquidation appears to have passed. Pricing logic is now set to refocus on fundamentals.
Short-term Support: First-Quarter Marginal Improvement in Supply and Demand
With sentiment noise fading, first-quarter fundamentals have become increasingly supportive. Supply growth has undershot expectations, demand has been boosted by export front-loading and restocking, and social inventories continue to decline. Together, these factors have created an “off-season that is not weak”, providing solid downside support for prices.
On the supply side, the pace of incremental output has been the largest positive surprise. Seasonal factors surrounding the Lunar New Year led to temporary supply contraction, as upstream mines underwent maintenance, salt lake lithium extraction facilities adjusted operations, and logistics slowed. Although Chile’s January export surge may temporarily affect import figures for January and February, overall first-quarter supply growth is running well below initial projections, creating a short-lived supply vacuum. Domestic lithium carbonate inventories have continued to decline. While market sensitivity to inventory data weakened during the height of sentiment-driven volatility, the underlying reality of destocking has provided implicit price support. As sentiment stabilizes, inventory trends will once again become a core pricing indicator.
Demand performance has been even more encouraging, driven by both policy and market behavior. The gradual phase-out of battery export tax rebates has prompted downstream manufacturers to accelerate shipments in the first quarter, generating a clear “rush-to-export” effect that directly boosts upstream lithium salt demand. At the same time, following the recent price correction, downstream battery producers have shown stronger restocking willingness. Most companies completed pre-holiday inventory builds, and post-holiday order fulfillment is expected to serve as a key demand anchor. Industry feedback indicates that operating rates at both power battery and energy storage battery manufacturers are steadily recovering, providing robust support for lithium salt demand in the first quarter.
Annual Outlook: Growth in Supply and Demand, Surplus Narrows with Inflection Point Approaching in 2027
Looking at the full year, the lithium carbonate industry in 2026 is expected to see continued growth in both supply and demand, with a modest surplus. However, the magnitude of surplus will narrow significantly compared to previous years. More importantly, a structural inflection point in the capacity cycle is drawing closer. By 2027, the industry may shift from surplus to deficit, and this medium- to long-term expectation is likely to lift the 2026 price center.
On the supply side, global lithium resource output is projected to grow by approximately 30% year-on-year in 2026. The period from 2024 to 2026 marks the concentrated commissioning and ramp-up phase of previously planned projects, keeping supply growth at historically elevated levels. This explains the mild surplus anticipated for 2026. However, a critical shift is underway. The sustained decline in lithium prices over the past two years has led to a clear slowdown in upstream capital expenditure. Investment in mine exploration and salt lake expansion projects has stalled or been delayed. As a result, supply growth from 2027 onward will likely fall below current levels. The capacity cycle inflection point is becoming increasingly visible, and supply-side growth constraints are expected to emerge.
On the demand side, growth is becoming more diversified, characterized by “slowing power battery growth, energy storage taking the baton, and innovation in consumer applications”. Global lithium demand is projected to grow by approximately 29% in 2026, broadly in line with supply growth. Power battery demand growth is expected to moderate to around 23% due to base effects, yet it remains the structural backbone of lithium demand. Energy storage batteries are poised to become the core growth engine, with projected growth nearing 60% in 2026, supported by rapid global expansion of renewable energy storage installations. Consumer batteries are also seeing renewed momentum, with growth forecasts raised to above 20%, as semi-solid-state batteries gain traction in emerging applications such as drones, robotics, and wearable devices, unlocking new demand potential.
In terms of supply-demand balance, the lithium carbonate market is projected to register a modest surplus of approximately 64,000 tonnes (lithium carbonate equivalent) in 2026. Nonetheless, the oversupply is narrowing significantly, and the market is transitioning from a loose to a near-balanced state. With supply growth expected to step down in 2027 amid continued demand expansion, the industry may formally enter a deficit phase. Markets are likely to price in this forward-looking expectation in advance, forming the core driver of an upward shift in the 2026 price center.
Strategy Outlook: Capture Long-Term Value Amid Volatility
Considering sentiment dynamics, near-term fundamentals, and long-term structural trends, the investment logic for lithium carbonate in 2026 is increasingly clear. The price center is likely to rise relative to 2025. High volatility and high elasticity will remain defining features, making timing more important than directional conviction. The first quarter represents the key window for long positioning, while subsequent quarters may present trading opportunities driven by temporary supply-demand mismatches.
In terms of timing, the first quarter offers the strongest fundamental support, as the temporary supply vacuum coincides with export front-loading and post-holiday demand recovery. Together with gradual sentiment repair, this creates a compelling entry window on price pullbacks. Investors are advised to wait for clear stabilization in both open interest and volatility before building long positions. Current prices have retraced to levels offering a reasonable margin of safety, and aggressive short-selling at depressed levels is not recommended. In the second and third quarters, as previously planned projects ramp up, incremental supply will gradually be released, potentially exerting short-term pressure on prices. However, downside risks should be limited by improving annual supply-demand dynamics. Excessive bearishness is unwarranted. In the fourth quarter, attention should focus on peak-season demand strength and the market’s pricing of 2027 deficit expectations to capture potential trend opportunities.
From a risk management and trading perspective, close monitoring of open interest and volatility is essential, as their stabilization serves as a key entry signal. In a high-volatility environment, options strategies may be preferable to outright futures positions. Selling out-of-the-money put options, for example, can enhance yield while hedging downside risk. Five core variables warrant close attention throughout the year: 1) open interest and volatility trends as confirmation of sentiment normalization; 2) post-holiday production resumption pace as a determinant of first-quarter price strength; 3) Chile’s export data to validate the front-loading shipment thesis; 4) the realization of the projected ~ 60% growth in energy storage installations; 5) upstream capital expenditure signals shaping the strength of long-term deficit expectations.
Conclusion
Bichem believes that recent sharp fluctuations in lithium carbonate prices reflect short-term capital and sentiment cleansing rather than a fundamental reversal in supply and demand. Market sentiment has likely bottomed, prices have returned to a rational range, and solid first-quarter fundamentals, a steadily narrowing surplus in 2026, and the approaching 2027 capacity cycle inflection collectively anchor the commodity’s long-term value. For investors, lithium carbonate in 2026 represents a strategic opportunity: build positions during sentiment-driven troughs, hold through volatility, and position ahead of improving structural fundamentals. Seizing the first-quarter entry window will be key to fully capturing the value uplift driven by the industry’s evolving supply-demand landscape.
