Chinese auto price war drags down battery raw materials prices

An increasingly fierce price war in China’s domestic automotive sector for electric vehicles (EVs) and traditional vehicles in recent months has dealt another blow to battery raw materials prices, sources told Fastmarkets

Tesla was the first to slash its prices after a drop in demand following the expiration of China’s electric vehicle (EV) subsidy. Other EV producers, including BYD, followed suit.

Producers of traditional petroleum-fueled vehicles, including domestic brands such as FAW, Dongfeng and SAIC, as well as US producer Chevrolet, joined the price war in early March in response to several factors, namely competition from the EV sector and a tighter exhaust standard due to go into effect in China from July 1, sources told Fastmarkets.

“Prices for traditional vehicles fell by as much as 100,000 yuan [around $14,600]. This has attracted many customers because this type of car is still more convenient to use compared with EVs,” one source said.

On March 22, the China Association of Automobile Manufacturers (CAAM) called on auto producers to be “reasonable” with their price cuts. Still, market participants expect the price war to persist until the new exhaust standard takes effect.

The competition from the traditional vehicle sector in turn put pressure on the EV market, despite strong sales in December. This put downward pressure on already strained battery raw materials prices.

“With the declining price of oil vehicles, the advantages of EVs in prices have gradually been negated because consumers prefer to choose oil vehicles rather than EVs if their prices are at a similar level,” a source at a ternary precursor producer said.

A lean order book from the EV industry has caused battery makers to maintain low inventories in recent months instead of securing any material from the spot market, according to sources.

Cobalt and lithium decline further

Faced with further EV demand reduction, lithium salt producers had to give bigger discounts in response to price cuts from traditional vehicle producers in early March.

“Buyer hesitation may be further intensified by the price war. Demand for battery raw materials is likely to remain weak in the near term due to the expected slow recovery in the EV sector,” a cathode producer source said.

“Cathode producers are destocking their lithium salts because lithium prices are on the downtrend and there is no signal of pick-up in demand in the near term,” the cathode producer source said.

Fastmarkets’ price assessment for lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 280,000-320,000 yuan ($40,656-46,464) per tonne on Thursday March 16, down by 30,000-45,000 yuan per tonne from 325,000-350,000 yuan per tonne on March 9.

“The macroeconomic environment does not look optimistic, and people are hesitant when it comes to consumption of goods as expensive as cars. So, we don’t see any support to upstream battery materials prices like lithium,” a lithium producer source said.

“EVs producers will also try to reduce production costs amid the price war by lowering the cost of batter raw materials,” a cobalt sulfate producer source said, adding that cobalt sulfate consumers will keep squeezing upstream materials prices, and cobalt sulfate prices will bear more pressure accordingly.

Fastmarkets’ price assessment for cobalt sulfate, 20.5% Co basis, exw China was 41,500-42,500 yuan per tonne on March 22, down by 500 yuan per tonne from 42,000-43,000 yuan per tonne on March 17, and down by 4,500 yuan per tonne from 46,000-47,000 yuan per tonne on January 4, 2023.

Lower nickel sulfate demand

Precursor producers have also been reducing their output since early March, which led to lower demand for feedstock nickel sulfate.

Fastmarkets’ weekly price assessment for nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China was 37,000-38,000 yuan per tonne on March 17, down 3.35% from 38,000-39,600 yuan per tonne week on week.

This is the third straight weekly drop in sulfate prices in China since February 24, when the uptrend ended.

Pressure on graphite prices

In the anode sector, the price war among automakers is adding more pressure to the oversupplied anode raw material market.

Fastmarkets’ price assessment for graphite flake 94% C, -100 mesh, fob China was $730-770 per tonne on March 16 and dropped by 9.6% from the start of the year. It has been mostly on a downward trend since February.

This is the first time flake fines prices dropped in the middle of the first quarter since Fastmarkets began pricing the material in 2018. The major production hub of flake graphite in Heilongjiang is still on its seasonal production halt, which, in principle, should have added support to prices.

“Falling auto prices resulted in slimmer profit margins among automakers and upstream battery manufacturers, which in turn, put more downward pressure on the anode sector with battery producers aiming to cut costs,” a flake graphite supplier in China said. “Spherical graphite producers are seeing limited new orders in the past couple of months, hence less buying of flake fines.”

Fastmarkets assessed the price for graphite spherical 99.95% C, 15 microns, fob China was $2,500-2,800 per tonne on March 16, stable since the middle of January after dropping by 8.62% in the start of the year.

“Prices for spherical graphite are close to the bottoming out now. Further falls might require deeper drop in the price of flake fines. Some spherical graphite producers have suspended their operation partly since late last year with an unclear restart schedule,” a spherical graphite producer said.

There is also competition from the synthetic anode sector. While graphite anodes remain the mainstream choice for downstream battery makers globally, synthetic graphite anode materials will retain the lion’s share of the market in the lithium-ion battery industry in the near term with much better performance in electrolyte compatibility, fast-charge turnaround and battery longevity.

Falling prices for the material could delay the expansion of natural graphite to some extent, sources said.

Prices for synthetic anode materials have been on a downward trend in recent months, market participants said.

“I heard the low end synthetic anode materials stood around 31,000 yuan per tonne on March 22, down by 14.33% from the start of the year,” a source at one battery manufacturer said.

February EV sales rebounded slightly, but market sentiment and consumption demand were still low.

China’s EV sales surged 55.9% year on year from a low base to 525,000 units in February, which was also up from January’s 408,000 units, according to the latest data from CAAM.

“What was consumed was the EV inventory piled up from last year,” a nickel trader in south China said.

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