The Zhitong Finance App learned that Guotai Junan released a research report saying that lithium prices have bottomed out at the end of 2024. If demand maintains current neutral estimates in 2025, lithium prices will fluctuate into the bottom range. Currently, the market is optimistic about demand in 2025, and supply in the industry has slowed its growth rate. The lithium price trend is expected to fluctuate in the bottom range in 2025. The phase is affected by seasonal factors, and there is a strong chance and room for a rebound. The rise in the lithium sector started on the basis that it is expected to reverse ahead of commodity prices.

Guotai Junan's main views are as follows:

Inventories play against expectations, and the balance between supply and demand “fails” on prices.

In the first quarter of 2024, production reduction announcements in some mines were compounded by optimistic demand-side expectations, driving lithium prices to bottom out and rebound in March. In the second quarter, against the backdrop that downstream construction was still strong in the first half of the year, lithium prices hovered high in April-May; starting in June, along with the decline in some overseas subsidy policies and tariff increases, compounded by the pessimistic sentiment of the macro commodity market and the rise in lithium carbonate production and imports, lithium prices accelerated downward.

At the beginning of the third quarter, the price of lithium carbonate still did not pick up significantly. It continued to drop in July-August and hit a low point of 0.07 million yuan/ton in early September. This was mainly due to the loose overall supply in the market. At the same time, high storage pressure hindered the transmission of terminal demand to the lithium salt side. The balance between supply and demand gradually “failed” under high inventory levels month by month, making it difficult to form strong support for prices; in September, as the degree of market recovery increased and inventory levels improved sequentially, lithium prices gradually picked up.

In the fourth quarter, downstream as a whole showed a “low season”, and lithium prices were strong under optimistic demand expectations; although demand during the peak season continued to provide short-term support to the market, the balance between supply and demand may be difficult to maintain an optimistic trend under “weakening expectations” as the end of the year approaches.

There is a steady stream of entrants and supporters, clearing the path or twists and turns.

Due to delays in the construction of lithium projects, the overall expansion of upstream lithium production capacity lags behind the rise in lithium prices, and there are still a large number of projects awaiting implementation. At the same time, CAPEX, the mainstream lithium resource provider, is still at a high level, and many of them have reduced costs and persisted in surviving the cold winter of the industry. Mining companies such as Rio Tinto entered the market through acquisitions, and some domestic listed mining companies are also increasing the layout of lithium production capacity construction. Upstream optimism and persistence may also cause the actual production capacity clearance process in this round to be difficult and tortuous, rather than overnight.

Under neutral expectations, lithium prices are expected to fluctuate between 0.07-0.09 million yuan in 2025.

Changes in market demand expectations have largely guided market price trends; at the same time, lithium prices are also a key variable affecting the release of lithium supply. Under pessimistic expectations, lithium demand grew 15%-20% year on year, and lithium prices fluctuated between 0.06-0.08 million yuan, corresponding to 1.37-1.4 million tons LCE supply; under neutral expectations, lithium demand grew by about 20% year over year, and lithium prices fluctuated between 0.07-0.09 million yuan, corresponding supply of 1.41-1.45 million tons LCE; under optimistic expectations, lithium demand grew 25%-30% year on year, and lithium prices fluctuated between 0.08-0.12 million yuan. Corresponds to a supply of 1.5-1.56 million tons of LCE.

Investment advice: The rise in the lithium sector will start before the spot price reverses.

The market expected the lithium sector to trade earlier. That is, when commodity prices were bottoming out, the lithium sector already included expectations that the industry would clear up. When the industry actually enters the supply clearance stage, the sector will trade commodity prices to reverse expectations.

Recommended: China Mining Resources (002738.SZ), Yongxing Materials (002756.SZ), Zangge Mining (000408.SZ), Tianqi Lithium (002466.SZ), Ganfeng Lithium (002460.SZ), Shengxin Lithium (002240.SZ).

Beneficial: Yahua Group (002497.SZ).

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