Global Business, BICHEM Group
In the past few years, China’s lithium overcapacity gets more and more severe. “Rat-race” is seen everywhere in this industry, which leads to catastrophic dumping. The Chinese government has specifically stated to renovate these adverse competitions. Since lithium production, the cornerstone of new-energy industrial and supply chain, has obvious periodicity; when overcapacity happens, there must be cutthroat competitions. Under the current circumstance of “anti-rat-race”, lithium price has been surged since the late June. The thing is how long will this surge last after the four-year slump.
I. Lithium Reserves and Distribution
The upstream of lithium chain consists of lithium mines and salt lakes, which produce spodumene and brines. The chemicals extracted and processed from these include various lithium salts and metallic lithium. Among these, lithium salts are primarily used to produce lithium carbonate and lithium hydroxide, which are key components in lithium-ion batteries. The main products produced using lithium salts as raw materials include lithium carbonate, lithium hydroxide, and lithium fluoride. They are used to prepare lithium iron phosphate cathode materials, ternary cathode materials, and the electrolyte lithium hexafluorophosphate, respectively. Among them, lithium carbonate is the most important and core product in lithium salt production, dominating global lithium salt production and market demand.
60% of lithium reserves comes from lithium extracted from salt lakes, the other 40% comes from lithium ores. However, in light of production, lithium extracted from salt lakes only accounts for 40%, and lithium from ores accounts for 60%. The reason that causes this incompatibility of reserves and productions is grade. Since lithium ore have higher grade than salt lake brines, lithium ores have easier production process, more reliable and stable quality, and lower costs.
According to data released by the U.S.Geological Survey in 2022, global lithium reserves total 130 million tons of LCE (lithium carbonate equivalent, the theoretical amount of lithium carbonate that can be extracted from lithium resources, which is the internationally recognized standard unit of measurement for lithium content). The top five countries by reserves are: Chile (46.5 million tons), Australia (31 million tons), Argentina (13.5 million tons), China (10 million tons), and the United States (5 million tons), accounting for a combined 81% of the total.
Ranks of theoretical lithium grade contained in the primary commodities of lithium ores and salt lakes are: spodumene > lepidolite > salt lake brines. The higher the grade, the easier the process and the lower the cost.
Based on the above information, we will then take lithium carbonate as a example to discuss about two cycles of lithium price as the evidence to further explore the trend of lithium industry.
II. Two Cycles of Lithium Price
In the past decade, price of battery-grade lithium carbonate experiences two cycles.
The first cycle begins in 2014, and lasts for 6 years. In this cycle, selling price of battery-grade lithium carbonate peaked at CNY152,000/ ton in 2017 from CNY38,000/ ton in 2014, and then dropped to CNY52,000/ tom in 2020.
Generally speaking, growing demand for EVs, long periodic supply of lithium industry, and capital speculation jointly caused this cycle.
To boost the development of new energy industry, China rolled out policies like EV purchase subsidy, purchase tax exemptions in 2014, and set the sale targets of 500 thousand and 5 million of EVs for 2015 and 2020 respectively, which directly encouraged Chinese EV manufacturers’ production expansion. From 2015 to 2017, sales volume of Chinese EVs leaped from 330 thousand to 777 thousand, with a compound annual growth rate of 53% Demand for power battery increased accordingly. In 2017, global shipments of lithium battery increased by 38% year on year, with the contribution of EVs exceeding 60%. Since 2017, China’s subsidy began to reduce gradually. In 2018, access to subsidy were further tightened, and on December 31st, 2022, China’s national subsidy were officially withdrew. Yet, there were still local government actively rolling out subsidy policies to support EV’s development.
If we compare the development process, we could find that the process of the national subsidy policy—rolling out, reducing, and withdrawal—has been synchronized with that cycle of lithium carbonate. However, annual production and sales data for EVs have not shown a completely synchronized change with lithium carbonate prices. EV production increased from 78,500 in 2014 to 12.88 million in 2024, with a compound annual growth rate of approximately 66.6%; in terms of sale volume, the compound annual growth rate was approximately 67.2%. Thus, national subsidy may excite the surge of price for lithium carbonate, but it may not the main reason of price slump.
Switch to Lithium supply. From 2016 to 2024, China’s lithium carbonate production increased from 78,000 ton LCE to 701,000 ton LCE with a compound annual increase rate of 31.5%; while other countries’ lithium carbonate production increased from 72,000 ton LCE to 620,000 ton LCE with a compound annual increase rate of 30.1%。 During these eight years, the compound annul increase rates of EV production and sale are 49.5% and 49.7% respectively, which are obviously quicker than production of lithium carbonate. No distinct imbalance between demand and supply are found in these two data.
From the year on year growth rate data for total lithium carbonate production at home and abroad, we can see that it basically moves in tandem with prices: when lithium carbonate prices fall, the year on year growth rate of total production also declines; when prices rise, the growth rate of total production also rises. We can infer that lithium carbonate manufacturers adjust their production volumes based on lithium carbonate prices. Although the growth rate has changed, the trend of production growth has basically remained unchanged.
Thus, the drastic fluctuation of lithium carbonate may mostly related to capital. China enjoys a quick increase rate of proportion of holdings of EV, but the absolute proportion remains rather low. Even in 2024, the number is only 11%. Automobile has great market potential. It is a pillar of national manufacturing industry. This low proportion of holdings endows lithium carbonate with great space. Thus, fluctuation of lithium carbonate in the first cycle was closely related to capital speculation.
The second cycle began in 2020. The price of lithium carbonate increased to CNY 385,000/ ton in 2022 from CNY 52,000/ ton in 2020, and then began to decline. In 2024, the ANNUAL average price of lithium carbonate is CNY 89,000/ ton. Until August 2025, the price of lithium carbonate is about CNY 82,000/ ton.
The crux of slump of lithium carbonate is global supply disruption caused by COVID-19. In the third quarter of 2020, the rise of demand promote the rising of price as Europe rolled out more subsidy policies. In 2021, the listing of lithium futures attracted a significant influx of speculative capital, driving the price of lithium carbonate to a historical high of an average of CNY 385,000 per ton for the year. However, the price bubble inflated by capital could not sustain itself indefinitely, and the price of lithium carbonate subsequently entered another downtrend. Since 2021, the year-on-year growth rate of global lithium carbonate production has consistently exceeded 30%, reaching 65% in 2023—far outpacing the growth rate of new energy vehicle production. The rapid expansion of production capacity inevitably triggered a sharp decline in lithium carbonate prices.
From these two cycles, balance between demand and supply and capital speculation should be major reasons that affect the price of lithium carbonate.
III. Learning from history: Under the situation of “Anti-rat-race”, how long can lithium price surge last?
From January to July 2025, China produced 501.5 thousand tons of lithium carbonate, and imported 141.4 thousand tons of lithium carbonate, totaled 642.9 thousand tons. The production and import of lithium carbonate in the first 7 months has exceeded that of 2023, registered 91.7% of the annual production of 2024.
As for price, lithium carbonate price in August is CNY 82,000/ ton. According to analysis of Morgan Stanley, in 2024, there are about 1.48 million tones of lithium ores are in expected yield, and there are about 350 thousand tones of LCE whose production cost exceeded CNY 80,000/ ton. Among them, over 150 thousand tones has occoured loss with the production cost over 96.5 thousand/ ton. Therefore, the production cost of lithium chemicals is about CNY 80,000-100,000/ ton. Lithium manufacturers are still underprofitable, which indirectly confirms that supply is abundant.
In terms of demand, in the seven months of 2025, the permeability of EVs keeps increasing, which demonstrates that the demand of lithium keeps soar. Despite that, supply of lithium chemicals are still higher than demands, which cause continuous weak price.
But the scientific and technological progress has spawned other lithium demands, including solid battery, low-altitude economy, and robot. In terms of energy density, cycle life, stability, and security, solid battery is far more better than current lithium-ion battery; therefore, it also got policy support. According to J.P. Morgan, demand for lithium is expected to increase by 2% if all-solid-state battery occupies over half of the EV market.
In low-altitude field, drones and vertical take-off and landing aircraft(eVolT) should be focused. Zhongtai Securities believes that market of civil drone is almost saturated, while industrial drone still has great development potential. In 2026, market size of industrial drone is expected to reach CNY 301.8 billion, with a compound annual increase rate of 50%. On the other hand, compering to EVs, eVolT has higher requirements for lithium battery, which will be the main consumer of solid battery. Even though eVolT is still in its infancy, Porsche Consulting predicts that the global market for eVolT is expected to exceed CNY 200 billion by 2030.
For robot, data from Deloitte shows that in 2025, size for global service robot market will reach USD 40 billion; by 2035, it will exceed USD 195 billion, with a compound annual increase rate of 17.1%. J.P.Morgan is more bold in humanoid robot, predicting that by 2035, its global market will exceed USD 500 billion. Demand for lithium battery raised in robot market for sure is a crucial long-term reason for boosting lithium price.
From the long-term perspective, lithium price is now at a low position. Lithium manufacturers are then underprofitable, which set a quite narrow boundaries for price decline. The appearance of “Anti-rat-race” quickened the process of cutting-overcapacity. At the demand end, permeability of EV remain low, and EV sales increase sharply; developments of robot, low-altitude economy and solid battery unleash the great potential of lithium price.
We can still expect an annual surge.