China lithium fundamentals are tightening, but much of the near-term upside is already priced in

Overview

This report focuses on China's lithium industry and the post-2025-results outlook for Ganfeng Lithium and Tianqi Lithium. HSBC believes that Zimbabwe's mineral concentrate export restrictions, structural supply risks in Africa, insufficient mine restarts to fully offset the gap, and resilient EV and ESS demand will together keep the lithium market broadly balanced but intermittently tight in 2026. Prices have rebounded materially from their lows and remain supported in the near term by low inventories, April-May downstream production schedules, and disruptions to Zimbabwe ore shipments, but as new supply is released in the second half, prices may ease back toward fundamental levels.

Core views

The core view is that fundamentals are tightening, but part of the improvement has already been priced in. HSBC raises its lithium price assumptions and company earnings forecasts, and lifts target prices; however, the investment calls diverge: Ganfeng is viewed as the better Buy because its upstream integration, rising self-sufficiency, improving costs, and scaling battery/ESS business give it earnings growth and additional upside leverage in a stable pricing environment. Tianqi also benefits from higher lithium prices and capacity expansion, but its short-term recovery is already more fully reflected in expectations, while Greenbushes ramp-up, SQM equity income, and lithium price volatility create a more balanced risk-reward profile, so it remains Hold.

Analysis framework

The report uses a framework that combines supply-demand balance, revised price assumptions, company turning points, capacity ramp-up, cost structure, forward P/B valuation, and target price sensitivity. At the industry level, it focuses on Zimbabwe supply policy, mine restarts, EV and ESS battery demand, inventories, and downstream production schedules. At the company level, it assesses Ganfeng's upstream resource self-sufficiency and battery business expansion, as well as Tianqi's Greenbushes asset, refining capacity, SQM investment, and capital management.

Methodology notes

• industry_supply_demandLithium supply-demand balance

  Lithium supply-demand balance

  Estimates the tightness of the global lithium market in 2026-27 by assessing global supply growth, Zimbabwe export restrictions, mine restarts, EV battery demand, and ESS demand.

• Valuation methodsForward P/B valuation

  Target price-to-book valuation

  Derives target prices for Ganfeng and Tianqi using 2026e BVPS and target P/B multiples, combined with historical averages, standard deviations, and RMB-HKD exchange rate assumptions.

• earnings_revisionPost-results estimate revision

  Post-results earnings forecast revision

  After incorporating 2025 results, higher lithium price assumptions, and demand outlook, the 2026/27e earnings forecasts are revised; Ganfeng's 2026/27e forecasts are raised by 140%/105%.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Ganfeng Lithium H/A

  core beneficiary

  Strengths

  Its upstream resource build-out is entering the harvest stage, with self-sufficiency likely to rise to 60-70%; lithium chemicals sales and margins are improving; battery and ESS businesses are scaling up; and the target price is raised while Buy is maintained.

  Weaknesses

  Part of 2025 profit came from non-recurring gains; ramp-up of upstream, chemical, and battery projects still requires execution.

  Comparison

  Compared with Tianqi, Ganfeng's stronger downstream footprint and integration execution make it the report's preferred pick.

  Risks

  Slower-than-expected project ramp-up, China-Australia trade frictions affecting spodumene imports, EV/ESS demand below expectations, and lower-than-expected investment income due to lithium price declines.

• Tianqi Lithium H/A

  price leverage and resource exposure

  Strengths

  High-quality Australian Greenbushes resources, expanding refining capacity, improving SQM equity income, and financing/asset disposals are enhancing financial flexibility.

  Weaknesses

  The near-term earnings recovery is already largely reflected in market expectations; SQM and lithium price volatility make earnings less stable; and execution risk remains for some project ramp-ups.

  Comparison

  Compared with Ganfeng, Tianqi is more sensitive to lithium prices and SQM income; the current risk-reward is more balanced, so we keep Hold.

  Risks

  China-Australia trade frictions, delays in lithium chemical capacity expansion, EV/ESS demand below expectations, and potential impairment on the SQM investment.

• Lithium carbonate / lithium chemicals

  core industry price variable

  Strengths

  Supply disruptions, low inventories, strong downstream production schedules, and ESS demand support near-term prices.

  Weaknesses

  As new supply is gradually released in the second half, prices may revert toward fundamental levels.

  Comparison

  Lithium chemical prices and spodumene cost support jointly determine profit differentiation between non-integrated and integrated producers.

  Risks

  Zimbabwe export recovery exceeding expectations, insufficient EV demand visibility, and higher lithium prices raising battery costs and compressing downstream margins.

• ESS demand chain

  incremental demand driver

  Strengths

  Policy support for an independent storage market and capacity payments, lower IRR thresholds at SOEs driving installation demand, and a rising share of ESS in battery production.

  Weaknesses

  Project economics still depend on pricing mechanisms and cost pass-through.

  Comparison

  ESS provides a faster-growing source of lithium demand than traditional EV demand.

  Risks

  Weaker-than-expected policy execution, lower returns on storage projects, and cost pressure on systems due to higher lithium prices.

Key data

• Lithium demand growth in 2026approximately 19% YoYDriven by both ESS demand and EV battery demand.
• Lithium demand CAGR through 2030approximately 13%The report expects demand to continue growing in the medium term.
• Zimbabwe supply impactapproximately -40kt LCE in 2026; approximately -68kt LCE in 2027Export restrictions and the quota system have led to downward revisions to supply estimates.
• Zimbabwe share of global supply in 2025approximately 8%This shows the importance of its policy changes to global supply.
• ESS demand2026/27e is 430GWh/542GWhESS-linked LCE demand is expected to grow by about 29% YoY in 2026, with its share of total demand rising from 19% in 2025 to 22% in 2026.
• EV battery demand2026/27e is 1,332GWh/1,482GWhDespite subsidy reductions, demand remains at a high level.
• China lithium priceApproximately RMB181k/t in Jan 2026, recent average around RMB150k/tThis is materially above the breakeven level for non-integrated producers.
• Ganfeng 2025 net profitRMB1.6bnCompared with a loss of RMB2.07bn in 2024, 2025 returned to profitability.
• Ganfeng 2026 lithium chemicals production guidanceapproximately 230ktUp from about 182kt in 2025, supported by higher utilization and the ramp-up of Cauchari-Olaroz.
• Ganfeng self-sufficiency ratioexpected at 60-70%Projects such as Goulamina, Cauchari-Olaroz, and Mariana are expected to raise self-owned LCE supply.
• Tianqi 2025 net profitRMB458mCompared with a loss of RMB7.9bn in 2024, profitability improved on the back of 2H25 margin recovery and better SQM returns.
• Tianqi refining capacityexpected to reach 121.6ktpaThis includes the existing 91.6ktpa, plus the Zhangjiagang 30ktpa lithium hydroxide project and the Chongqing 1ktpa lithium metal project.

Impact & implications

For portfolios, the implication is that short-term price support in the lithium sector is improving, but investors should distinguish between price leverage and company execution/cost structure. Companies with high integration, clearly delivered upstream projects, lower costs, and explicit downstream ESS expansion are more likely to convert a stable or rising price environment into earnings growth; by contrast, companies whose valuation already reflects a lot of recovery, or whose earnings depend heavily on external lithium prices or equity investment volatility, offer a more balanced risk-reward.

Risks

• A broader recovery in Zimbabwe exports would ease supply constraints.
• EV demand visibility remains insufficient, with China 1Q26 EV retail sales down 21% YoY.
• Higher lithium prices lift battery costs; a RMB50k/t rise in lithium carbonate prices theoretically adds about RMB30/kWh to battery costs, or roughly USD380-440 per vehicle.
• Mine, lithium chemical, and battery project ramp-ups are slower than expected.
• China-Australia trade frictions could affect self-supplied spodumene imports.
• ESS or EV demand growth is below expectations.
• Volatility in SQM investment returns or potential impairment could affect Tianqi's earnings.

What to watch

• Implementation of Zimbabwe's export quota system and the pace of ore shipment recovery.
• The actual impact of supply recovery in 2Q-3Q26 on lithium prices and inventory.
• Changes in China's April-May battery production schedules, ESS mix, and production guidance from battery makers such as CATL.
• Whether lithium carbonate prices stay around RMB150k/t or fall back in 2H26.
• Ramp-up progress of Ganfeng's Goulamina, Cauchari-Olaroz, Mariana, and Sichuan 50kt projects.
• Progress on Tianqi's Greenbushes CGP3, Zhangjiagang lithium hydroxide project, and Yajiangcuola project.
• ESS policies, capacity payment mechanisms, and state-owned enterprises' energy storage installation demand.