Lithium Prices Extend Slide Amid China's Strategic Reserve Pause
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
lithiumchinaev-batteries
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Lithium carbonate prices declined 3.5% in Asian trading on May 25, 2026, extending a multi-week slide. The move follows a report that China has suspended its domestic lithium stockpiling initiative, a key support mechanism for the market. Concurrently, Brent crude oil futures fell 1.8% to $80.42 per barrel amid concerns over global demand. The developments underscore a recalibration of expectations for key industrial commodities as macroeconomic headwinds persist.
China's dominance in the lithium supply chain is near-total. The country refines over 60% of the world's lithium and manufactures more than 70% of its lithium-ion batteries. This gives its government policies an outsized influence on global price discovery. The strategic reserve program, initiated in late 2025, was a direct intervention aimed at stabilizing domestic prices for its vast electric vehicle industry after a brutal bear market. The pause signals a belief that market forces have found a sustainable equilibrium, or that fiscal resources are being diverted. The last time China intervened directly in a metals market was with aluminum in 2022, when state stockpiling briefly lifted prices by over 15% before they resumed their decline.
The spot price for lithium carbonate in China now sits at 82,500 yuan per tonne, down from a peak of over 500,000 yuan in late 2022. The 3.5% single-day drop brings the year-to-date decline to 18%. This contrasts with the S&P GSCI Commodity Index, which is down only 2% for the year. The global lithium market is projected to remain in a surplus of approximately 50,000 tonnes of lithium carbonate equivalent in 2026. Major producer Albemarle reported a 40% drop in quarterly earnings, citing the price environment. For context, the current price is just above the estimated production cost curve for higher-cost spodumene miners in Australia.
| Metric | Current Level | Change (1D) |
|---|---|---|
| Lithium Carbonate (China Spot) | 82,500 yuan/t | -3.5% |
| Brent Crude Oil | $80.42/bbl | -1.8% |
The immediate impact falls on high-cost lithium producers, particularly junior miners outside of China. Companies like Piedmont Lithium and Core Lithium face intensified margin pressure, potentially forcing production cuts. Battery manufacturers, including Contemporary Amperex Technology Co. Limited (CATL) and LG Energy Solution, stand to benefit from sustained lower input costs, which could accelerate EV price competitiveness. A key risk is that prolonged low prices stifle investment in new supply, setting the stage for a significant deficit later in the decade when EV adoption rates are projected to accelerate. Hedge fund positioning data shows a net short bias on lithium futures, while long-term physical off-take agreements are being renegotiated at lower price floors.
Markets will monitor Chinese economic data releases on June 10th for signals on industrial demand. The next OPEC+ meeting on June 22nd will be critical for oil price direction, with any production cuts providing support. For lithium, a key level to watch is the 80,000 yuan per tonne psychological support; a sustained break below could trigger another leg down toward 70,000 yuan. The US Department of Energy's quarterly inventory report on strategic minerals, due July 15th, will indicate if other nations are following China's lead in pausing acquisitions.
The pause is a net positive for US automakers like Tesla and Rivian in the short term, as it maintains pressure on battery material costs. However, it reinforces reliance on the Chinese-dominated supply chain. These companies are heavily invested in securing non-Chinese sources of lithium, but those projects often have higher costs. Lower spot prices may temporarily ease margin pressure but do not alter the strategic imperative for diversified sourcing through investments in projects in North America and Europe.
Production costs vary significantly by source. Low-cost brine operations in South America can produce lithium carbonate for under $5,000 per tonne. Australian spodumene hard-rock miners have cash costs between $10,000 and $15,000 per tonne. When converted to lithium carbonate equivalent and including capital expenditures, the all-in sustaining cost for many Western producers is often above $20,000 per tonne. The current spot price, while low, remains above the survival threshold for most major established producers but is uneconomical for new greenfield projects.
China has a mixed record with strategic stockpiling. Its purchases of rare earth elements in the 2010s successfully stabilized prices and consolidated its market dominance. However, interventions in base metals like copper and aluminum have typically provided only temporary price support, as global market surpluses eventually overwhelmed government buying power. The lithium program was smaller in scale and appears designed to set a price floor rather than engineer a sustained rally, a goal it arguably achieved before being paused.
China's withdrawn support shifts lithium's price discovery fully back to a oversupplied physical market.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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