ANTAIKE BATTERY MATERIALS CONF: Six key takeaways from Shaoxing

Cobalt prices, investment opportunities, subsidies for electric vehicles (EVs) and substitution risk were hot topics at Antaike’s Battery Materials Conference in Shaoxing, China last week.

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,” Shanghai Greatpower president Aaron 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 per yuan tonne as recently as December 2017 but still at attractive levels that makes 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.