Galaxy Securities: Expectation of Rising Midpoint in Lithium Prices or Possible Phase Mismatch

Galaxy Securities Research Report points out that the lithium price trend in 2025 can be divided into two clear halves by mid-year. The first half continues the consensus of oversupply, with prices falling near the cash cost of spodumene. It is reported that some overseas mines plan to reduce production, but no decision has been made yet. The second half has already started to turn around. In the third quarter, the dual drivers of active storage and movement, combined with the impact of the new Mineral Resources Law on mining permits, have reversed the bearish sentiment among investors. The trading cycle has reached a turning point, and industry trends are improving. By the end of the year, lithium carbonate prices have more than doubled from their lows. Even with frequent regulatory policies, the upward trend remains unchanged, with prices continuously reaching new highs after brief corrections. The report believes that lithium, as a key mineral for energy transition, is an important foundation in the global competition for electricity pricing power, and the industry’s long-term trend is positive under the “anti-involution” environment. In 2026, lithium will become a preferred asset for long positions, with an expected upward shift in the price center. However, due to expectations of slight oversupply throughout the year, the market will experience a more turbulent pace. In the first half, investors tend to buy on dips; in the second half, with increased supply flexibility, they should flexibly manage hedging strategies.

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【Galaxy Futures Nonferrous】Lithium Annual Report | Upward Shift in Price Center, Possible Phase Mismatch

Preface Summary

Market Review:

The lithium price trend in 2025 can be divided into two clear halves by mid-year. The first half continues the consensus of oversupply, with prices falling near the cash cost of spodumene. It is reported that some overseas mines plan to reduce production, but no decision has been made yet. The second half has already started to turn around. In the third quarter, the dual drivers of active storage and movement, combined with the impact of the new Mineral Resources Law on mining permits, have reversed the bearish sentiment among investors. The trading cycle has reached a turning point, and industry trends are improving. By the end of the year, lithium carbonate prices have more than doubled from their lows. Even with frequent regulatory policies, the upward trend remains unchanged, with prices continuously reaching new highs after brief corrections.

Market Outlook

On the macro level, liquidity remains loose, and market risk appetite is rising. National strategic guidance encourages and supports energy transition, and the overall industry trend is positive against the “involution” backdrop. On the demand side, subsidies for new energy vehicles (NEVs) have been phased out, slowing growth, but explosive growth in energy storage continues to support lithium carbonate consumption. Battery manufacturers expanding capacity shorten energy storage order delivery cycles, increasing monthly lithium carbonate consumption. Maintaining the same inventory-to-sales ratio requires more raw material stockpiles. During the upward cycle, companies adopt a “supply guarantee” approach, actively replenishing inventories to reduce spot circulation, further pushing prices higher.

On the supply side, high prices stimulate new production, reactivation, and accelerated ramp-up, increasing supply elasticity in the second half of the year to meet the demand from expanding battery factories. In the first half, mines and smelters are reluctant to sell, which may cause phase mismatches in Q2. Trading logic: Lithium, as a key mineral for energy transition, is a crucial foundation in the global contest for electricity pricing power. The industry’s long-term trend remains positive under the “anti-involution” environment. 2026 is a transition year from bear to bull market, with capital favoring it and a relatively fast pace. It is recommended to flexibly manage hedging positions.

Strategy Recommendations

1. Unilateral: Buy on dips in the first half, flexibly manage strategies in the second half. 2. Options: Roll-over selling of put options.

Risk Warning: Macroeconomic and industry policy disturbances.

Market Review

The lithium price trend in 2025 can be divided into two clear halves by mid-year. The first half continues the consensus of oversupply, with prices falling near the cash cost of spodumene. It is reported that some overseas mines plan to reduce production, but no decision has been made yet. The second half has already started to turn around. In the third quarter, the dual drivers of active storage and movement, combined with the impact of the new Mineral Resources Law on mining permits, have reversed the bearish sentiment among investors. The trading cycle has reached a turning point, and industry trends are improving. By the end of the year, lithium carbonate prices have more than doubled from their lows.

Slowing Growth in Power Demand, Energy Storage Exceeds Expectations

Subsidies for new energy vehicles (NEVs) have been phased out, slowing growth, but explosive growth in energy storage continues to support lithium carbonate consumption. Battery manufacturers expanding capacity shorten energy storage order delivery cycles, increasing monthly lithium carbonate consumption. Maintaining the same inventory-to-sales ratio requires more raw material stockpiles. During the upward cycle, companies adopt a “supply guarantee” approach, actively replenishing inventories to reduce spot circulation, further pushing prices higher.

1. NEV Market Growth Slows

2. China Market

Old-for-new subsidies have become an important driver supporting domestic NEV consumption in 2025. From January to November, over 11.2 million old-for-new subsidy applications were filed, while vehicle sales in China from January to November reached 31.07 million units, accounting for over one-third, with more than 57% being NEVs. The National Development and Reform Commission and the Ministry of Finance issued a notice at year-end about large-scale equipment renewal and consumer goods old-for-new policies starting in 2026. They support vehicle scrapping, renewal, and replacement, with subsidies at the same level as in 2025, but in 2026, subsidies will be proportional to vehicle price, with lower subsidies for cheaper cars. Subsidies are now standardized nationwide, prohibiting local extra subsidies to attract consumption, which may weaken heavy truck sales. Benefits include an advance distribution of 62.5 billion yuan in January, smoothing the transition during the off-season.

Subsidy reductions are not limited to old-for-new policies. Starting in 2026, NEV purchase tax will be halved from full exemption (saving up to 15,000 yuan), and automakers have introduced “bottom-line” policies, promising to compensate for tax differences for cross-year deliveries, helping to smooth the early-year lull, but negative impacts will persist throughout the year.

According to CAAM data, from January to November 2025, China’s NEV sales increased by 31% year-on-year to 14.73 million units, with a penetration rate of 53% in November. The full-year forecast is around 16.55 million units, up 29% year-on-year, with a penetration rate of about 48%. Given that the retail penetration of new energy passenger cars has already exceeded 60%, if subsidies are not increased, sales growth will slow. Due to exhausted subsidies in some provinces and cities, the growth of NEVs has slowed since October, with limited volume increase in December. Only significant growth in commercial vehicles can sustain overall NEV growth. With full subsidy phase-out, China’s NEV sales are expected to grow by 16% in 2026 to about 17.8 million units.

2. Overseas Market

In 2025, the US passed the “Big and Beautiful” Act, ending IRA subsidies on September 30, which led to a backlog of NEV sales in Q3, with a sharp decline in Q4. Other policies, such as easing fuel efficiency standards and emissions regulations, have encouraged automakers to return to internal combustion engine (ICE) vehicles. For example, Ford announced cuts to several EV development and production plans, while Tesla shifted focus to autonomous driving, AI, and robotics. Some US battery factories are shifting from power to energy storage. The US’s EV electrification process under this government is unsustainable.

In Europe, new subsidies in 2025 boosted NEV sales by 29% to 3.434 million units from January to November. China’s share remains small, leaving room for growth. Although the EU canceled the 2035 ban on new fossil fuel vehicles and set a 90% emission reduction target instead, the direction remains unchanged, with a more flexible pace. Due to lower competitiveness of domestic automakers, more Chinese brands are expected to enter. In 2026, Europe’s NEV penetration rate is expected to continue growing, with increased imports of Chinese independent brands to meet the 2025-2027 average carbon standards.

Global NEV sales are projected to grow 14% in 2026 to 24.1 million units, with China maintaining high export levels.

Energy Storage Economics Drives Explosive Growth

1. China Market

The revenue of Chinese energy storage stations can be summarized into four channels. First, capacity leasing provides stable basic income, with energy storage stations leasing capacity to meet grid requirements. Lease costs are typically between 250-350 yuan per kilowatt per year, so a 100MW station can earn 25-35 million yuan annually. Second, arbitrage in the electricity spot market is a key flexible revenue source—charging during low prices and discharging during high prices to profit from peak-valley spreads. In mature markets like Shandong and Guangdong, a 100MW/200MWh station can earn 20-25 million yuan annually through arbitrage. Customer-side energy storage can earn higher implicit returns, as self-use replaces customer’s on-site electricity, which is more expensive than grid prices. Third, auxiliary services like frequency regulation and peak shaving generate additional income, with compensation rates around 0.15-0.8 yuan per kWh for peak shaving and 0.1-15 yuan per MW for frequency regulation. Some regions also offer capacity payments as a safety net, varying by province—for example, about 330 yuan per kW annually in Shandong, and up to 0.35 yuan per kWh (2026: 0.28) for projects commissioned before 2025, covering a 10-year lifecycle. Overall, a well-designed 100MW/200MWh independent energy storage station in favorable policy and market environments can generate annual revenue of 50-60 million yuan, supporting an internal rate of return (IRR) of about 8%.

The Chinese government has established a comprehensive planning system centered on new energy storage, covering the “14th Five-Year Plan” (2021-2025), the “15th Five-Year Plan” (2026-2030), and medium- to long-term goals (2030-2035). Policies are based on the “Energy Law” and top-level guidance like the “Guiding Opinions on Accelerating the Development of New Energy Storage,” along with special plans such as the “Special Action Plan for Large-Scale Construction of New Energy Storage (2025-2027).” These policies clarify the strategic role of energy storage as “an important technology and infrastructure for building a new power system and achieving carbon peak and neutrality,” making it a key infrastructure for energy transition. Under this framework, clear capacity targets are set: over 100 GW of new capacity from 2025 to 2027, with cumulative installed capacity surpassing 100 GW by the end of 2025, aiming for 180 GW by 2027; in the medium to long term, capacity will reach over 240 GW by 2030 and be fully marketized, exceeding 300 GW by 2035, serving as the core support for power system balance and security.

To achieve the 180 GW target by 2027, over 100 GW had already been installed by 2025, requiring an additional 80 GW in 2026-2027. It is estimated that 55-60% of new capacity will be added in 2026, corresponding to 45-50 GW of new energy storage. Actual installations may exceed expectations. Market-driven improvements in energy storage economics—such as peak-valley arbitrage and capacity payments—are maturing, with explosive demand in AI data centers, renewable integration, and large-scale storage. Companies are rushing to deploy storage ahead of subsidy reductions to maximize profits, leading to optimistic market expectations for 2026. Overall, driven by policy and market factors, energy storage installations are expected to grow rapidly in 2026, with independent storage accounting for 90-95%.

2. Overseas Market

In overseas markets, North America faces a significant power gap, with increasing AIDC (Advanced Industrial Demand for Capacity) needs further widening the gap. The US Department of Energy forecasts that AIDC will consume 176 TWh of electricity in 2023, accounting for 4.4% of total US demand, rising to 325-580 TWh (6.7%-12%) by 2028. Starting in 2026, the FEOC (Federal Energy Optimization Code) rules will require energy storage systems to meet at least 50% of cell capacity and 70% of module capacity domestically; projects failing to meet these standards will not enjoy up to 30% tax benefits. Additionally, US imports of Chinese energy storage batteries face tariffs rising to 48.4%, which may temporarily impact development. Despite this, aging US grids continue to drive demand for storage, and local manufacturing will take time, still relying on Chinese supply chains, which may lead to cost-sharing pressures. The EU passed the “Clean Industrial Pact State Aid Framework” (CISAF) in 2025, planning to invest 100 billion euros to promote energy transition, with countries like Spain, the Netherlands, and Austria launching storage subsidies. The European Solar Energy Association’s “2025-2029 European Battery Storage Market Outlook” forecasts a 28.7 GWh increase in storage capacity in 2025, with a 28% YoY growth, based on expectations of residential market recovery, doubled commercial storage, and a 24% growth in large storage. Under moderate scenarios, Europe’s battery storage deployment is expected to increase by 41.9 GWh (41% YoY) in 2026 and by 68 GWh (62% YoY) in 2027. Besides these countries, emerging markets like Australia, Middle East, and Chile also offer subsidies and have frequent bidding rounds. The global energy storage market is experiencing rapid growth, with a 50% shipment growth rate forecasted for 2026 under neutral assumptions.

Industry Shift to “Supply Guarantee” Mode, Potential Tightening of Circulating Supplies

Over the past two years, due to market consensus of oversupply, companies have mainly focused on destocking, minimizing raw material inventories and maintaining cash. Smelters and downstream companies signed discounted long-term contracts, with pricing still based on M-1, and battery cathode producers acting as OEMs, earning only processing fees. Raw material inventories often only cover 1-2 weeks of consumption. During upward cycles, especially when lithium prices were at 400,000-600,000 yuan, fundamentals remained relatively stable, but market expectations of rising prices led to hoarding across the supply chain, with reluctance to sell and strong price support. Tight circulation and hidden inventories created a self-fulfilling upward trend until demand sharply declined, prompting active destocking and price collapse. The second half of 2025 is just the early stage of the next upward cycle, with the industry lacking a unified outlook, leading to the first wave of price increases and inventory depletion. After lessons learned from the capital-driven rise, the industry may shift to a more optimistic “supply guarantee” approach next year, reinitiating active inventory replenishment and creating additional stockpiling demand.

Supply Elasticity Still Requires Time to Unfold

High prices stimulate new production, reactivation, and accelerated ramp-up, increasing supply flexibility in the second half, matching the demand from expanding battery capacity. In the first half, reluctance to sell from mines and smelters may cause phase mismatches in Q2.

1. New Mine Production, Ramp-up, and Reactivation Increase Supply Flexibility

High lithium prices in 2021-2022 spurred new capacity deployment, with annual additions of 400,000-500,000 tons from 2023 to 2026. Due to falling prices, most miners announced cuts to future capital expenditure in 2024, affecting exploration and planning. In 2027-2028, annual capacity additions are expected to drop below 200,000 tons. Considering the time needed to ramp up to full capacity, the peak growth is forecasted for H2 2026 to H1 2027.

The main new capacity sources in 2026 will include salt lakes in Argentina, Qinghai, Tibet; Australia’s Greenbushes No. 3 plant; two spodumene mines in Mali, Africa; Manono in the Democratic Republic of Congo; Neves in Brazil; domestic spodumene mines in Xinjiang and Sichuan; and lithium micas in Hunan and Inner Mongolia. Additional incremental capacity comes from reactivations, such as mines under Sigma in Brazil, mines in Zimbabwe, and Jiangxi’s Jianxiawo. The reactivation of Jianxiawo is currently delayed until after the Spring Festival 2026, subject to real-time updates. Four Australian mines halted in 2024 due to low prices, with Cattlin being resource-depleted and entering maintenance, losing price sensitivity. The others—Finniss, Bald Hill, and Ngungaju—are capable of reactivation, with current prices providing profit margins that could stimulate their restart, adding extra supply elasticity. Currently, lithium salt prices are about twice the cash cost of mainstream mines, likely encouraging accelerated production, ramp-up, and reactivation.

After years of development, salt lake production accounts for over 30%, surpassing Australian mines at around 25%. In 2026, all raw material types will see growth, but due to frequent unrest and logistical issues in Africa, output may fall short of expectations. Domestic lithium mining is becoming more compliant and mainly consists of new capacity, so incremental growth may be less than expected. Conservative estimates project a 26% global lithium resource increase in 2026 to 2.066 million tons.

2. Smelting Capacity Still Expanding, Self-Owned Mine Ratio Increasing

After Jianxiawo’s shutdown in August, lithium spodumene processing capacity needs to be supplemented. Domestic processing capacity is nearly maxed out, indicating no further increase in utilization rates. Some smelters have new capacity coming online this year, but ramp-up takes time. Overseas mine prices follow market trends, and due to reluctance to sell and high prices, processing fees remain low, leaving some high-cost capacity idle. Relying on Chinese mines for expansion and increasing self-owned mine ratios is necessary. In 2025, two mines in Mali will operate normally, and full capacity is expected in 2026. Large domestic mines are also coming online, further improving self-sufficiency. Additionally, the price gap between lithium carbonate and hydroxide has widened, with some flexible production lines switching to carbonate, and the natural recovery trend during price rises can add incremental supply.

Current lithium salt inventories are low, and the proportion of long-term contracts in 2026 is expected to be even lower, so smelters need to replenish their inventories first. This process will take time; even if monthly output increases, circulation may lag, requiring dynamic assessment.

Future Outlook and Strategy Recommendations

Under a neutral assumption for 2026, Jianxiawo’s restart after the Spring Festival (6 million tons/year) is expected. Power demand growth is projected at 20%, energy storage at 50%. Supply growth slightly exceeds demand, leading to a slight increase in oversupply. In 2027, a shift toward shortage is anticipated.

The static balance sheet does not account for inventory cycle impacts on prices. From a macro perspective, lithium remains a key mineral for energy transition and a strategic asset in the global contest for electricity pricing. The long-term trend is positive under the “anti-involution” environment. With current low inventory levels, switching to a “supply guarantee” mindset will trigger a phase of active stock replenishment, with significant upward price elasticity. However, excessive optimism in pricing could also influence the balance sheet negatively, potentially leading to unexpected downward pressures. 2026 is a transition year from bear to bull market, with lithium becoming a preferred long position. The price center is expected to rise, but due to expectations of slight oversupply, the market will be more volatile. In the first half, buying on dips is recommended; in the second half, with increased supply flexibility, flexible hedging strategies should be employed.

(Article source: People’s Financial News)