China’s battery raw materials supply chain struggling to recover from pandemic despite government support

Participants in China's battery raw materials market are still struggling to recover from the latest Covid-19 outbreak in the country and the related lockdown measures imposed to prevent further spread of the virus

Headwinds persist despite government support to expedite the resumption of production activity in the Chinese battery raw material market, which has struggled for much of the past two months following a surge in battery metal prices in March, while a worsened Covid-19 outbreak in April largely paralyzed the entire supply chain.

As a result of the continuing virus control measures in China, the country’s electric vehicle (EV) output fell by 33.00% month on month to 312,000 units in April, while sales of such vehicles declined by 38.30% to 299,000 units in April, data from the China Association of Automobile Manufacturers (CAAM) shows.

In late April, the municipal government of Shanghai released a list of companies, including 249 automotive-related companies, and encouraged the resumption of their production activity by setting up a “closed-loop management” system at factories, by which employees work and live on-site.

Notable companies on the list include automobile manufacturers Shanghai General Motors and Tesla, as well as components supplier ZF Friedrichshafen, market sources told Fastmarkets.

“We believe that China’s battery raw materials supply chain is facing the biggest challenge right now,” a cathode maker source told Fastmarkets. “Although we see help coming from the government, it still needs more time to recover.”

Logistical bottlenecks choke battery supply chain

According to a list from the Shanghai Municipal Postal Administration (SMPA) on May 7, 21 logistics companies had been allowed to resume work. Another 7 logistics companies were added to the list on May 16, according to SMPA.

Certain companies can now also apply for permits that allow cross-province transport (into Shanghai) and any travel within Shanghai, for the delivery of commercial goods, the Shanghai Municipal Commission of Commerce said on April 26.

The logistics disruptions in China, however, have not seen a major improvement despite these efforts, market participants told Fastmarkets.

“Right now, it is still hard for materials to be delivered in or out of Shanghai, while the nearby provinces like Jiangsu and Zhejiang also have strict controls on delivery,” a nickel sulfate producer source told Fastmarkets.

Multiple market participants reported difficulty in acquiring a permit that would allow them to make deliveries to Shanghai.

“In addition to the permit needed for transport into Shanghai, truck drivers need to go through a complicated process when leaving Shanghai, including [needing to have] a negative nucleic acid test result from within the past 48 hours. Drivers have been greatly discouraged from entering Shanghai,” a lithium trader told Fastmarkets.

“Production at Tesla’s Shanghai plant has gradually recovered since April 19. But they are having supply issues with some components needed for their EV production due to logistical bottlenecks. If logistics remains affected, their stocked materials and other components will run out, causing further production problems,” a second cathode maker source said.

Bearishness pervades battery raw materials market

The slow recovery of China’s EV market and the ongoing logistics disruptions have led to thin demand for battery metals, including nickel, cobalt and lithium, which in turn has pushed prices for these materials downward.

“Despite the government’s efforts to assist the recovery in the EV market, and while those EV producers have resumed production, such efforts will take time to be translated into improved demand in the cathode sector and further upstream to demand for battery metals,” a second lithium trader said.

Multiple cathode producers have reduced their production by 20-50%, or even more, and they do not expect any resumption in their production in June or even July. Therefore, they show little interest in purchasing any battery metals in the spot market, market sources told Fastmarkets.

“We cut our cathode production by 20% in April, and now it is [reduced by] 40% in May because of the poor demand from end users, which made us have no interest to purchase nickel sulfate,” a nickel sulfate buyer told Fastmarkets.

The latest outbreak of Covid-19 in China has diminished confidence in the domestic nickel market, while the price of nickel sulfate – a feedstock for battery cathode – has also started to drop recently.

Nickel sulfate price

Fastmarkets assessed the price of nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China, at 44,000-46,000 yuan ($6,476-6,770) per tonne on Friday May 13, down by 1,500-2,500 yuan per tonne from 46,500-47,500 yuan per tonne a week earlier, and down by 2,000-2,500 yuan per tonne from 46,500-48,000 yuan per tonne on April 29, when prices started to fall.

Lithium hydroxide monohydrate

Thin buying appetite for lithium salts has also been troubling the spot lithium market lately, while demand for lithium hydroxide – feedstock for nickel-manganese-cobalt (NCM) batteries – has dropped quicker than that for lithium carbonate due to the previous high nickel prices, according to market sources.

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 May 12, narrowing downward by 10,000 yuan per tonne from 450,000-480,000 yuan per tonne a week earlier. The price was assessed at 480,000-510,000 yuan per tonne on March 31, when it started to trend downward.

China’s output of NCM batteries in April decreased by 33.9% month on month to 10.3 gigawatt hours (GWh) in April. The output of lithium iron phosphate (LFP) batteries totaled 18.6 GWh in April, a 21.0% decline month on month, according to the data from China’s Battery Union.

“There have been no offers for lithium hydroxide recently, because the sellers know they there will be no demand corresponding to their offers,” a third lithium trader said.

“Persistently high nickel prices during March and April have greatly discouraged the production of NCM batteries, especially nickel-rich NCM batteries, resulting in a much thinner demand for lithium hydroxide,” a third cathode producer source said.

Lithium carbonate price

Fastmarkets’ price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range, exw domestic China, was 440,000-470,000 yuan per tonne on May 12, unchanged since April 28.

Cobalt sulfate market update

Limited deals of cobalt sulfate were reported to Fastmarkets during April and May amid little to no buying appetite from downstream consumers, while sellers were forced to continuously lower their offers in order to boost cash flow.

“We concluded no deals for cobalt sulfate in April and the situation continues in May. Once there are some small-volume inquiries on the spot market, we have no choice but to lower prices under fiercer competition,” a cobalt sulfate producer source said.

“Under the overall sluggish market, we have no demand for cobalt sulfate at all. The spot market inventory is approximately over 10,000 tonnes of cobalt sulfate stocks, which brings continuous pressure [to prices],” a ternary precursor producer source said.

Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China, was 100,000-102,000 yuan per tonne on May 13, narrowing downward by 2,000 yuan per tonne from 100,000-104,000 yuan per tonne May 11. The latest assessment is down by 20,000 yuan per tonne from 120,000-122,000 yuan per tonne on March 30, when prices started to trend downward.

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