Why are lithium prices in China soaring this week?

Lithium prices in China have risen sharply this week, driven by the convergence of steadily tightening inventories, improving demand expectations, and improved macroeconomic sentiment.

Battery-grade lithium carbonate and hydroxide inventories in China have been consistently drawn down since September 2025 and are now lower than at any time in 2025. With inventories depleted, the market has become increasingly sensitive to marginal changes in demandexpectations and supply fundamentals.

Demand expectations firm as policy support is confirmed

Expectations that China’s central government would provide direct support to consumer demand in 2026 were confirmed on 30 December, when authorities announced an initial RMB62.5 bn ($8.94 bn) consumer subsidy programme, including support for electric vehicles.

Under the policy, EV trade-in subsidies of up to 12% of a vehicle’s price will be offered, capped at RMB20,000 ($2,860) per vehicle. While the immediate impact on near-term lithium demand is limited, the policy has reinforced confidence across the battery materials supply chain.

This follows a broader improvement in macroeconomic sentiment in China, as seen by recent RMB strength compared to the US dollar. Together, currency strength and confirmed consumer stimulus have helped shift sentiment from cautious to constructive.

Permit reforms reduce supply elasticity

The end of 2025 saw the cancellation of 27 expired mining licences in Jiangxi and the introduction of the State Council’s Action Plan for Comprehensive Solid Waste Management. This impacted prices despite no loss of active lithium supply.

Such measures will not immediately reduce lithium production in China, but will instead reduce the flexibility of lithium supply to respond to improving demand. Price, rather than rapid supply adjustment, will drive market rebalancing in 2026.

EXW China prices move first

The recent rally has been most visible in ex-works China pricing, where domestic sentiment, inventory tightness, and near-term procurement dynamics are most quickly reflected.

Between mid-December and early January, Benchmark’s lithium carbonate EXW China assessments rose sharply, extending gains already underway before year-end. Hydroxide prices followed a similar trajectory, supported by improving expectations for both EV and energy storage system demand.

CIF Asia price movements lag EXW China

Benchmark’s long-term price forecasts are assessed on a CIF Asia basis, rather than EXW China, reflecting international trade flows, logistics, and downstream contract structures.

The gap between EXW China and CIF Asia pricing remains significant. Domestic Chinese price movements typically lead international markets, but the magnitude and timing of transmission differ materially.

“CIF Asia prices will gradually edge upwards to narrow the gap to China domestic, but CIF liquidity has been slow to rebound since buyers are reluctant to accept these much higher offers,” Adam Megginson, principal lithium price analyst at Benchmark, said. “Regional spot demand has been weak, with existing contracts covering most consumers’ demands, and the surge in domestic prices has pushed CIF Asia buyers to wait-and-see.”

The Benchmark Q4 2025 Lithium Forecast upside demand scenario continues to support higher pricing, with forecasts of $15.00/kg CIF Asia spot in Q1 under upside conditions and a $18.80/kg CIF Asia annual average in 2026, reflecting improving EV penetration, energy storage growth, and constrained supply responsiveness.

A sentiment-led rally, underpinned by fundamentals

In summary, lithium prices in China are rising this week not because of a single triggering event, but because inventories are low, demand expectations have improved, and confidence in policy support has been reinforced.

With constrained supply elasticity and improving sentiment, price is again the key adjustment variable in China, and international markets will likely follow.