Lithium prices in China have slumped by almost a third in the last three months after weaker demand in the world’s largest market for electric vehicles has punctured a two-year rally for the key battery component.

Prices have dropped 29 per cent from November highs to Rmb425,000 ($61,795) per tonne, according to pricing agency Fastmarkets, driven by concerns over the strength of EV demand in Asia’s largest economy.

“There has been persistent weakness in China,” said Jordan Roberts, lithium analyst at Fastmarkets. “The market is waiting to see the impact from the reduced new energy vehicle subsidies and is concerned by low household confidence, which is tied to the country’s property crisis.”

Lithium prices rocketed from mid-2021 as breakneck growth in EV sales prompted a scramble among automakers and battery manufacturers for the metal nicknamed “white gold” for its importance to the clean energy industry. But waning Chinese demand has raised doubts over how tight the lithium market will be this year, dragging down prices elsewhere in the world as well as shares of lithium producers.

Even so, Chinese lithium prices still remain eight times their level of a year ago and have significantly further to fall before they get close to the cost of production at even the most expensive mines.

Adding to the bearish sentiment, CATL, the Chinese company that is the world’s largest battery producer, was reported by local media and Reuters last week to have signed battery contracts with Chinese EV manufacturers at discounted prices.

It reportedly managed to secure significantly lower lithium prices from its suppliers at about Rmb200,000 together with commitments from its automotive customers to buy 80 per cent of their battery needs from it in a bid to boost market share.

BTR, CATL’s battery materials supplier that reportedly slashed the prices of key materials at the industry leader’s request, declined to comment.

The falling lithium prices and bearish CATL reports lopped almost 10 per cent off of the share prices of large lithium miners and processors such as US-based Albemarle and Chile’s SQM on Friday. They both fell a further 3.5 per cent on Monday.

Chinese electric car sales suffered a weak start to the year, although Lunar New Year took place in January this year when sales tend to dip. New energy vehicles, which include fully electric cars and plug-in hybrids, dropped 6.3 per cent to 408,000 units in January compared to the same month in 2021, according to data from the China Passenger Car Association.

Put together with lower EV sales in Germany and Norway following subsidy cuts, Abhishek Murali, electric vehicles analyst at Rystad, a consultancy, said that “within the automotive industry there is some consensus that the rapid growth observed in 2021 and 2022 may not be seen this year”.

However, lithium for delivery to the US and Europe has fallen far less, only dropping 10 per cent to $70,500 per tonne over the same period, according to Fastmarkets.

Mathias Miedreich, chief executive of Umicore, a Belgian battery materials producer and large buyer of lithium, said that the Chinese market had always been relatively separate from the rest of the world.

“I do not believe there is a structural reason why the lithium price is dropping in China. I think the Chinese lithium market was always a bit decoupled from the rest of the world,” he said, adding that western and Chinese lithium pricing would continue to diverge as supply chains deglobalise.

Albemarle, the world’s largest lithium producer, has stuck by its bullish view on EV sales and lithium prices, saying last week that China’s EV demand will grow 40 per cent this year over last, equivalent to an increase of 3mn vehicles.

Kent Masters, chief executive of the North Carolina-based company, said on an earnings call that “as China reopens, we expect moderation in EV demand to be shortlived with medium and long-term demand remaining robust”.

Scotiabank, which started coverage of the lithium market last month, said the recent sell-off for lithium equities was mostly unjustified because there will not be enough new supply even as lithium demand eases from “super-growth” to “high-growth”.

“While the year ahead has a slight chance to see temporary softness in lithium spot prices, beyond 2024 we are stumped as to where supply will come from to satisfy demand,” it said.