Chinese lithium futures plunged by roughly 25% in September amid growing concerns over weakening demand for electric vehicle (EV) batteries and energy storage systems (ESS), according to market data from the Guangzhou exchange. The contract for lithium carbonate, a key metal refined for battery production, fell from above 160,000 yuan (approximately S$22,900) per tonne at the start of the month to below 120,000 yuan by its close.
The sharp decline follows a volatile year for China’s lithium market, the world’s largest, which had seen a rebound after prices bottomed out in 2025. The recovery had been driven by constrained mine supply, robust export growth, and a surge in utility-scale battery applications. However, recent sentiment suggests that the momentum for battery consumption may be faltering.
“There is a mounting sense of doubt that the consumption momentum can hold up to the end of 2026 sufficiently to absorb the strong cell production we have seen recently,” said Adam Megginson, principal lithium price analyst at consultancy Benchmark Mineral Intelligence. He characterized the market’s concerns as focused more on medium-term demand resilience than immediate consumption.
China’s battery manufacturers have expanded capacity aggressively, but this has resulted in oversupply amid tepid demand growth. In response, Chinese authorities suspended approval for new battery production projects in September to curb overcapacity. Additional pressures include the recent implementation of a consumption tax on lithium-ion batteries and broader economic challenges affecting Chinese industries.
Beyond China, global factors are also weighing on lithium market sentiment. Trade restrictions in the European Union and tightening monetary policy in the United States add uncertainty to the market outlook. A private survey conducted in early September indicated that Chinese lithium inventories were significantly higher than industry expectations, sparking debate over actual demand levels.
Shares of Contemporary Amperex Technology Co. Ltd. (CATL), the world’s largest EV battery manufacturer, have also experienced notable declines, reflecting investor concern over sector prospects.
Despite the recent sell-off, some industry observers outside China argue that the price drop has been exaggerated and driven more by negative sentiment than market fundamentals. Ignacio Hecheh, CEO of Chilean miner CleanTech Lithium, suggested the downturn lacks a basis in supply-demand dynamics and predicted a short-term price recovery due to anticipated deficits in the coming years.
Analysts see the sluggishness of the Chinese EV market and the widening gap between ESS battery cell production and actual installations as contributing factors to the softening demand. Jordan Roberts, senior analyst at consultancy Project Blue, noted that expectations for increased lithium supply in 2027 have also weighed on prices. Nonetheless, he indicated that underlying market imbalances remain, with deficits expected to persist through the rest of the year, causing continued inventory drawdowns and providing some price support.
The lithium price decline comes amid broader shifts in China’s economy. While Chinese factory activity showed its first expansion since June, new stimulus measures appear targeted at maintaining growth rather than reversing underlying demand weaknesses. Meanwhile, coal prices for Chinese power plants rose for an 11th consecutive week amid efforts to boost domestic mining and continued output challenges in Indonesia.
Overall, the lithium market faces a complex mix of domestic controls, shifting demand patterns, and external geopolitical and economic pressures, making near-term price directions uncertain.