Metal Bulletin rounds up some of the key things we learned
at the event.
It’s all about EV subsidy policies
China’s EV subsidy policy drives the pace and direction of
adoption; as of this year, the government’s subsidy policy prioritizes pure EVs,
which have higher driving ranges and energy densities, incentivizing the faster
development and adoption of nickel-rich cobalt manganese lithium-ion batteries.
The higher thresholds for EV subsidies have consequently necessitated investment in nickel-rich battery chemistries - companies are
battling to avoid being left behind, Aaron Cao, president of Shanghai
Greatpower, said at the conference.
“The government keeps raising the
bar and, if you don’t make enough investment, you will lose your competitive
edge,” Cao said.
Meanwhile, the gradual removal of subsidies for EVs
with restricted driving ranges has prompted EV makers to pass on the resulting
cost increases to battery manufacturers. This is squeezing those manufacturers’ profit margins significantly,
according to Zhang Yu, secretary general of the battery section of the China
Industrial Association of Power Sources.
Nickel raw material
supplies are adequate for nickel sulfate production in near term
Although nickel sulfate output will increase rapidly in the next
two years, the supply of raw materials is adequate for production in the near
term because most refineries will be able to call on existing stocks until 2020,
according to Xu Aidong, chief analyst of Chinese research organization Antaike.
Global nickel sulfate production was about 540,000 tonnes in 2017; Xu
forecast a rise of about 100,000 tonnes this year, which equates to demand of
about 20,000 tonnes of nickel briquette. Nickel stocks on the London Metal
Exchange are around 280,000 tonnes, with nickel briquettes accounting for just
below 220,000 tonnes.
The impression that nickel sulfate can only be
produced from nickel sulfide ores is a false one, according to Xu. Nickel
laterite ores, typically used to produce nickel pig iron and ferro-nickel, can
also be used to produce nickel sulfate through hydrometallurgy, he
said.
Environmental restrictions may change producers’ preference
for raw materials
Environmental scrutiny was a hot topic on the
sidelines of the conference, with delegates indicating that cobalt concentrates
might fall out of favor among refiners due to the difficulty of dealing with
waste produced during the refinement process.
“Refineries in Zhejiang
province may be equipped with facilities to process waste, especially among
newly started refineries; meanwhile, for refineries located in inland China,
they might either upgrade their facilities to meet environmental protection
requirements or consume more cobalt intermediates rather than concentrates,” a
trader told Metal Bulletin.
Similarly, lithium producers are likely to
choose brine over minerals as feed for lithium carbonate production because
using the former does not cause pollution, according to one miner.
In
addition, producing lithium from brine is likely to be more accepted by
refineries from a cost-saving perspective, Zhang Jianfeng, secretary general of
the Lithium Association, China Non-ferrous Metals Industry Association, told
delegates.
Lithium prices incentivize investment
China’s capacity to produce battery-grade lithium compounds remains
limited “apart from in Qinghai where there have been some breakthroughs
recently,” Cao told delegates.
At
current lithium prices, “everyone is exploring crazily,” Cao said.
Metal
Bulletin assessed battery-grade lithium carbonate prices at 105,000-110,000 yuan
($15,490-16,225) per tonne, ex-works China, on Thursday July 19, down from
170,000-180,000 yuan per tonne as recently as December 2017 but still at
attractive levels that make investment a viable option for
many.
But tight credit, environmental inspections will limit
China’s upstream investments
Restrictions on credit have been one
reason for the fall in cobalt prices in recent weeks but it is also limiting
companies’ capacity for upstream investment.
“The required investment is
still so big that companies can’t necessarily afford it,” Cao said.
This
is also the case in the nickel market, where prices are still considered unappealingly
close to the bottom of the cycle. The London Metal Exchange three-month
nickel price is trading in the mid-$13,000s, some way below highs above $20,000
per tonne in 2014.
At the same time, strict environmental policies leave
little capacity for upstream expansion in China, meaning the country is likely
to maintain its dependence on imported battery raw materials.
Cobalt prices have stabilized in China but for how long?
The cobalt market looks fundamentally healthy, with some believing
destocking is coming to an end at a time when demand seasonally returns. Cobalt
sulfate prices and the high cost of cobalt raw materials also put cathode
material producers close to a loss, leading some to suggest that prices will
naturally have to recover.
On the other hand, downstream consumption has
tailed off in recent months and cobalt stocks in producer and investor hands -
invisible to the market - are believed to be high.
Both are risks that
the market will find difficult to control; both could put further pressure on cobalt prices.