Lithium plunges 25% in China on fears over battery demand growth

Chinese lithium futures have plummeted by a quarter in September, driven by concerns over weakening demand. The Guangzhou exchange’s lithium carbonate contract, a crucial ingredient in electric-vehicle batteries and energy-storage systems, fell below 120,000 yuan (S$22,878) per ton, down from over 160,000 yuan at the start of the month.

This marks a significant downturn after a dynamic year for China's lithium industry, which has been buoyed by constraints on mine supply, robust export growth, and the rise of utility-scale batteries as a major demand driver. In 2025, the contract price stood at around 74,000 yuan per ton. However, growing doubts now surround the sustainability of consumption momentum into the latter half of 2026, according to Adam Megginson, principal lithium price analyst at Benchmark Mineral Intelligence.

The issue isn't just about immediate demand but the resilience of demand in the mid-term. Chinese battery manufacturers have built up excess capacity relative to demand, prompting the government to suspend the construction of new projects in September. Additional pressures include a consumption tax on lithium-ion batteries, macroeconomic headwinds, global trade barriers, and tighter monetary policy in the United States.

A recent private survey revealed unexpectedly large inventories, intensifying debate and focusing attention on the actual demand situation.

While some argue that the price drop is driven by investor sentiment rather than market fundamentals, Ignacio Mehech, CEO of Chilean miner CleanTech Lithium, maintains that there is no market fundamental basis for the decline and expects it to reverse in the short term. Jordan Roberts, a senior analyst at consultancy Project Blue, notes that expectations of improved lithium supply into 2027 have also impacted prices.

However, he points out that underlying supply-demand imbalances still indicate monthly deficits for the rest of the year, which should sustain inventory drawdowns, albeit at a slower pace, providing some support to prices.

Meanwhile, other factors, such as rising coal prices for Chinese power plants, a 55% tariff on Brazilian beef shipments to China, and China's broader economic stimulus package aimed at maintaining growth rather than sparking a broad revival, add complexity to the lithium market outlook. Despite these challenges, the evolving energy landscape in China, exemplified by the proliferation of electric vehicle charging stations, underscores the ongoing transition toward greener energy sources.