BATTERY MATERIALS CONF: Key talking points ahead of the Shanghai conference

Key talking points across the battery raw materials markets ahead of Fastmarkets’ second annual Battery Materials Conference, taking place this week in Shanghai, China.

Will China’s cobalt metal imports pick up significantly in 2019?
When global cobalt metal prices bottomed out in late March and made a quick turnaround at the beginning of April, some Chinese traders and consumers resumed their appetite for importing material amid a positive import arbitrage, evident by the extensive inquiries and aggressive bids. The question is whether those inquiries will materialize into actual purchases.

Chinese import arbitrage has traditionally been in mild negative territory, but due to the bearish outlook shared by Chinese market participants towards the ramp-up of production of cobalt hydroxide, China’s theoretical import loss widened to over $11 per lb last November. China imported only 6 tonnes of cobalt metal in October 2018, an all-time low.

However, after international benchmark cobalt price fell heavily between December and February, China’s import loss turned to a profit early this year, at $1.55 per lb in late March – the highest level even seen in the past few years.

Is there an appetite for cobalt hedging?
The shift in cobalt prices compared with a year ago attests to the market’s potential volatility and in response the London Metal Exchange launched a new cobalt contract, cash-settled against Fastmarkets’ benchmark price assessment, last month. A pronounced move in prices on the down side, especially since the beginning of the year, has brought out buyer interest but has slowed the uptake of the new hedging mechanism pending a narrowing of the bid-offer spread. At the same time, a recent rebound in prices, combined with the expectation that electric vehicle (EV) manufacturers will consider it essential to hedge their cobalt exposure, means interest is circling around the new contract.

What do lower cobalt prices mean for the shift to nickel-rich cathode chemistries?
Multi-year price highs and changes to China’s EV subsidy policy were forcing discussions about an expedited shift to 811 battery cathodes at the time of last year’s conference. Cobalt prices stand about 66% lower than a year ago, meaning one of those factors has disappeared. While China’s latest subsidy policies give preference to higher energy-density vehicles (and therefore higher-nickel, lower-cobalt battery cathodes), lower cobalt prices plus recognized development costs and safety concerns mean that transition is unlikely to continue at the pace expected a year ago.

In addition, the subsidy program will be scrapped from 2020, so NCM622 lithium-ion batteries could prove themselves as the mainstream option, having been invested in and developed for comparatively longer time [than 811], while also meeting the demand for high driving range and energy density that is required by medium- and high-end markets.

How to avoid a class one nickel deficit?
Concerns around a shortage of nickel suitable for use by the battery sector are growing, with the market lacking the supply response that has faced the cobalt and lithium markets. Investment in class one nickel projects has largely been on the back burner as LME nickel prices languish below levels considered necessary to incentivize investment. In addition there are concerns an increase in nickel price – fueled by battery sector demand – would trigger an increase in NPI production, which cannot be used to produce sulfate. One suggestion is that the nickel market will split in two – the traditional reference to reflect the dynamics of the steel market, and a new reference to reflect the different fundamentals of the battery sector.

Lithium prices facing supply pressure
China’s spot battery-grade lithium carbonate and hydroxide markets have seen a very slow price decrease since the beginning of the year due to a deceleration in spot consumption. The expected reduced value of the 2019 new energy vehicle subsidy policy paid to manufacturers and tightening of the requirements from last year policy kept consumers from purchasing additional material in the spot market for most of the first quarter of 2019.

Market participants are mulling the impact of additional units of lithium compounds added to the Chinese market year on year, as well as the recent VAT cut that could also help push prices down in the coming weeks.

The Chinese domestic spot battery-grade lithium carbonate price (min 99.5% Li2CO3) fell to 70,000-78,000 yuan per tonne on Thursday April 4, from 75,000-85,000 yuan per tonne on January 3, on a China ex-works basis. 

Battery-grade lithium hydroxide monohydrate (min 56.5% LiOH.H2O) fell to 93,000-98,000 yuan per tonne [LINK] on Thursday April 4, from 99,000-109,000 yuan per tonne on January 3, on a China ex-works basis.

What factors might dominate the spherical graphite market in 2019?
The relative lack of volatility in spherical graphite prices in 2018 helped underpin the healthy development of the downstream EV industry. But environmental inspections ahead of the international Shanghai Cooperation Organization summit in May of 2018 led spherical graphite producers in the production hub of Shandong province to suspend operations, leading to tighter supply. Similar inspections ahead of the National People’s Congress and Chinese People’s Political Consultative Conference in March 2019 further tightened supply.

Participants expect environmental inspections to continue to dominate the market this year given there are still some producers who are not meeting the required environmental standards.

Will China turn into a major importer of upstream flake graphite?
Although Chinese imported negligible volumes of natural flake graphite –  the key raw material in the production of spherical graphite –  few years ago, that trend has changed dramatically.

In some Chinese production hubs such as Shandong province, the grade of flake graphite mined has gone down and local resources have dried up due to decades of unregulated mining activity. But the growing demand for flake graphite from  the EV and other industries has left China needing foreign products to fill its domestic supply gap.

In 2018, China imported a total of 60,254 tonnes of flake graphite, significantly more than the 5,482 tonnes that entered the country in 2017.