Xiaomo: Lithium prices face downward pressure in the short term, ESS demand supports the medium-term outlook to maintain the “increase” of Ganfeng Lithium (01772)

The Zhitong Finance App learned that J.P. Morgan Chase released the China Lithium Industry Research Report that lithium carbonate futures prices have fallen 10% to 140,500 yuan per ton so far this month, while China's lithium industry stocks have fallen 9% to 11% during the same period, outperforming the 0.6% decline of the Hang Seng Index since this month. Although there is uncertainty about the resumption of production at the Jianxiawo lithium mine under the Ningde Era (03750), which should support the view that supply is tight, the Shanghai Nonferrous Metals Network (SMM) revised the inventory classification, increasing the reported inventory by about 94,000 tons compared to the previous series, and the market focus changed back to inventory and demand verification.

Although the new framework still shows inventory removal, the headline data on the increase in total inventory volume exceeded market expectations, triggering a sentiment led sell-off starting September 4. J.P. Morgan believes that lithium prices may decline to 130,000 to 135,000 yuan per ton in the short term, but the medium-term outlook is still supported by downstream demand, especially energy storage systems (ESS). The bank maintained Ganfeng Lithium's (01772) “gain” rating with a target price of HK$70; it gave Tianqi Lithium (09696) a “neutral” rating, with a target price of HK$36.

The bank said that the schedule for resuming production at the Jianxiawo lithium mine has not yet been confirmed, and the volume arriving in Zimbabwe is expected to normalize in the fourth quarter. J.P. Morgan notes that according to Mysteel reports, after the EIA for the Jianxiawo lithium mine was cancelled on August 26, the market's discussions on resuming production became more clear. According to the bank's channel investigation, the Jianxiawo lithium mine had previously resumed production in a low-key manner, but now work has stopped again. The schedule for resuming production is still subject to further supervision and environmental review, and has not yet been confirmed. The schedule for resuming production of other Jiangxi lithium mica projects that require renewal may also be longer than expected.

On the Zimbabwean side, J.P. Morgan expects port arrivals to gradually normalize in the fourth quarter as miners ship ahead of schedule before the comprehensive ban on lithium concentrate exports comes into effect on January 1, 2027.

SMM released revised lithium carbonate inventory data on September 4. The reported inventory increased from 76,000 tons revised in May to 169,000 tons on September 3, which means an increase of about 94,000 tons. According to J.P. Morgan Chase, the increase in inventory is largely due to wider sampling coverage and reclassification rather than a deterioration in basic inventory trends. The new inventory data still shows a weekly decrease of 5,600 tons. As a result, the bank believes that the new data is a short-term sentiment and fluctuation resistance, but the directional interpretation is still consistent with continuing inventory removal.

In terms of downstream demand, J.P. Morgan Chase pointed out that ESS is still a key highlight. Global ESS battery shipments remained strong in July, and the industry is still expected to meet or exceed the bank's forecast for the 2026 fiscal year. Key discussions are shifting to the sustainability and pace of growth in 2027, particularly the normalization of ESS growth in China from a high base and the risk of a possible slowdown in shipments in the second half of 2027. The October-November data should more clearly show the resilience of demand in 2027. Until then, lithium prices may remain sensitive to supply-side news and positions.