China auto output, sales plunge in January after end to buyer subsidies exacerbates weak demand
The start of 2023 saw output and sales in China’s auto sector plunge, dragged down by several factors, including the end of government subsidies and the week-long Lunar New Year holiday, according to the China Association of Automobile Manufacturers (CAAM)
Chinese car manufacturers produced 1.59 million units in January, down by a third (33.1%) compared with December, while sales fell by 35.5% month on month to 1.64 million units.
Production and sales dropped by 34.3% and 35% year on year respectively, according to CAAM’s monthly report, which was published February 10.
Electric vehicle (EV) output fared even worse, falling by 46.6% month-on-month and 6.9% year-on-year to 425,000 units in January, while sales were down by 49.9% month-on-month and 6.3% year-on-year at 408,000 units.
The poor performance in EVs can be largely attributed to the termination of government subsidies and significant price fluctuations EV sales prices, according to CAAM.
Auto exports from China were not affected, however, and CAAM data shows that 20% of the 408,000 EVs sold in January, about 83,000 vehicles, were exported - an increase of 1.1% month on month and by 48.2% year on year.
Higher cold-rolled coil (CRC) prices
Fastmarkets’ weekly price assessment for steel cold-rolled coil domestic, ex-whs Eastern China was 4,570-4,600 yuan ($671-675) per tonne on February 10, up by 50-70 yuan per tonne from 4,500-4,550 yuan per tonne on January 13.
Prices for CRC - which is used to make auto body panels - in China’s eastern market have edged up over the past month, with market participants still awaiting a demand pick-up after the Chinese New Year holiday (January 21-27).
And any upside potential in steel prices has been limited by fears that the post-holiday demand recovery would miss expectations, market participants said.
“The spread between CRC and its hot-rolled coil [substrate] didn’t widen, suggesting that demand from end users has yet to fully recover,” a trader in eastern China said.
CRC inventories held by traders in 21 major Chinese cities totaled 1.49 million tonnes on January 31, up by 230,000 tonnes, or 18.3%, from January 20 and by 360,000 tonnes, or 31.9%, compared with the end of January 2022, according to data from the China Iron & Steel Association.
Leading Chinese steelmaker Baoshan Iron & Steel has raised its CRC prices for a third straight month for March bookings, increasing its domestic base prices by 200 yuan per tonne month on month, after implementing 100 yuan-per-tonne increase for February bookings.
Weak demand impacts battery materials market
Weak demand was also weighing on prices in the battery raw materials market
Prices for lithium salts, a key material for EV battery production, continued to slide through January, due to weak demand from the EV sector and strong buyer caution.
Spot liquidity also started to wane when China entered the Lunar New Year holiday period, when movements on the country’s domestic transport system were fully halted.
Fastmarkets’ price assessment for lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 445,000-461,000 yuan per tonne on Thursday February 9, down by 9,000-15,000 yuan per tonne from 460,000-470,000 yuan per tonne a week earlier. The price was 490,000-520,000 yuan per tonne on January 5.
Fastmarkets’ price assessment for lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price range exw domestic China was 450,000-470,000 yuan per tonne on Thursday, also down by 10,000-20,000 yuan per tonne from 460,000-490,000 yuan per tonne a week earlier. The price stood at 490,000-520,000 yuan per tonne on January 5.
“The spot market became less and less active as the Lunar New Year holiday approached, with market participants waiting for a clearer indication of price movements after the holiday,” a cathode producer source said.
Market sentiment was bearish during January and, due to the cancellation of China’s EV subsidy from 2023, market participants said the outlook for EV sales in the first quarter of 2023 would be weak, leading to low demand for upstream battery materials.
Market participants therefore expected spot lithium prices to remain on a downtrend in the near term, with lithium consumers adopting a wait-and-see mode while their demand was limited during January.
Although the price of nickel sulfate – another key battery raw material for EVs – in China had been on a downtrend since December last year, the downside was paused in late January and the market bounced back in February, with more buying appetite surfacing after the Lunar New Year holiday.
Fastmarkets’ weekly price assessment for nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China was 38,000-38,500 ($5,576- 5,649) yuan per tonne on February 10, up 2% from the previous week, when the price just started to gain strength after several months in decline.
This recovery was not, however, driven by actual downstream demand from the EV industry, sources said.
New demand for nickel sulfate came after Chinese stainless steel and nickel giant Tsingshan Holding Group started producing nickel full plate by using nickel sulfate as a raw material in January.
But Chinese integrated nickel plants were last week said to be buying nickel sulfate instead of nickel matte when prices of the two were almost identical.
The recent rebound in the nickel sulfate market followed production cuts in mid-December, bolstered by recent restocking activity after market participants returned from the Lunar New Year holiday.
Sentiment was boosted by the resumption of buying, although some market participants are skeptical about how long the rebound could last, citing the cloudy demand outlook from the EV industry.
“The window for exploiting arbitrage terms would normally only last two to three months, because buying activity would soon wipe out the price gap between nickel and nickel sulfate” a source at a precursor plant told Fastmarkets. “But thereafter I’m not sure if EV demand [will] pick up as expected,
Prices for cobalt sulfate, another key battery raw material, have been on a continuous downward trend in China through January, due to weak downstream demand and sufficient supplies.
Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China was 38,000-39,000 yuan per tonne on February 10, unchanged from February 8, but the price was down by 8,000 yuan per tonne from 46,000-47,000 yuan per tonne on January 4.
“Downstream buyers [of cobalt] have limited buying interest, curbed by weak demand from the EV sector. Moreover, the Lunar New Year in January [meant] most buyers opted to hold a watchful attitude toward the post-holiday market,” a cobalt sulfate producer source said.
A cobalt sulfate consumer said: “We are still focusing on destocking cobalt sulfate and are in no hurry to buy more material considering the sluggish demand from the batteries and EV [sectors]. I think there will be limited improvement in the cobalt sulfate market in the first quarter of 2023.”
While prices for flake graphite – an upstream raw material for anode products – remained mostly stable throughout January, due to supply tightness amid the halting of operations in the major production hub of Heilongjiang, it dropped in the start of February on slow demand from the spherical graphite sector.
Fastmarkets’ assessment for graphite flake 94% C, -100 mesh (-194), fob China was $820 per tonne on February 9, down by 1.2% from the previous assessment.
Meanwhile, Fastmarkets’ assessment for graphite spherical 99.95% C, 15 microns, fob China was $2,500-2,800 per tonne on February 9, in line with the previous assessment but down by 8.62% from the start of the year.
The weakness in graphite market could be attributed to several factors, including weak demand in the downstream EV sector and increased competition from synthetic graphite, according to sources.
“The expansion of synthetic graphite capacity in the past couple of years is leading to softening prices of the material. This, in turn, adds more pressure to the corresponding natural graphite [price], given that the latter used to hold the advantage in terms of being lower cost,” a graphite producer in China said.
Spot prices for battery-grade manganese sulfate also fell in a weak market.
Fastmarkets’ price assessment for manganese sulfate 32% Mn min, battery grade, exw mainland China was 6,000-6,300 yuan per tonne on February 9, down by 200 yuan per tonne from 6,200-6,500 yuan per tonne a week earlier.
The fundamentals of supply exceeding demand for manganese sulfate in China do not change and spot trading is rare, sources said.
“We don’t have the need to buy [manganese] sulfate, whether through long-term contracts or spot trading. We still have stock to use [up],” a downstream cathode precursor producer source said.
“The manganese sulfate market has been quiet for quite a long time. I have heard that buyers can negotiate for a bigger discount from sellers,” a second downstream producer source said.
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