Five key talking points ahead of Fastmarkets Asian Battery Materials conference

The key talking points across the battery raw materials markets ahead of Fastmarkets’ Asian Battery Materials conference, taking place in Singapore on May 1-3

1. Slower-than-expected recovery in Chinese demand drags down international markets

Despite the recent improvement in China’s electric vehicle (EV) output and sales, market participants note that such strength did not filter through to the upstream battery materials market due to a well-stocked battery supply chain.

“The upstream battery and cathode sectors, as well as battery materials producers, all have large inventories. Battery and cathode makers having been focusing on destocking amid underwhelming orderbooks. Any improvement seen in the EV sales will take quite a while to translate further upstream into better demand for battery raw materials,” a Chinese cathode producer source said.

“Sentiment also remains bearish, since the market has not seen any signal that the demand for battery materials will recovery soon. Operation rates among cathode producers remain as low as 50-60% in general and no one is planning to ramp up production in the near term,” the Chinese cathode producer source added.

As a result, market participants have reported sustained weakness in battery metals demand, including lithium, cobalt, nickel and manganese in China, and their prices have been trending downward in recent months.

With China being the biggest EV market and battery metal producer in the world, the downtrend of domestic battery metal prices in the country has caused international battery metals markets to similarly weaken.

Given the wide spread between lithium salts prices in the East Asian market and the Chinese domestic market, consumers in the former market have been trying to push East Asian prices down to domestic Chinese levels – especially because demand for lithium salts from the EV sector has not been a strong as they had expected.

Fastmarkets’ assessment of lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea was at $38-43 per kg on Wednesday April 26, unchanged from a day earlier, but down by 51.50% from $83-84 per kg since the beginning of this year.

Similarly, weak demand from the cobalt chemical sector in China, along with weaker intermediate prices, have continued to put pressure on the international cobalt standard grade price.

Fastmarkets’ daily assessment of cobalt standard grade, in-whs Rotterdam was $15.15-16.00 per lb on Wednesday, down by $0.10-0.25 per lb from $15.25-16.25 per lb a day earlier.

2. Shifting supply chains

Increasingly localized supply chains are a key priority for legislative bodies globally, but particularly in the energy transition space.

At present, the battery supply chain is heavily weighted toward East Asia, with China dominating both production and consumption of batteries and EVs.

“If you take a look at the market now, Europe and the US are years behind where China is,” a lithium producer source told Fastmarkets.

Upon the passing of the Inflation Reduction Act (IRA) in the United States, and the Critical Raw Materials Act proposed by the European Union, attention is turning to the growing need to build local supply chains.

This includes the development of domestic raw material production, refining as well as downstream production of materials.

“One of the key questions for this market is how these supply chains will look at the end of this decade,” a trader said.

3. Regional cooperation to come along with resource nationalism

With demand for battery metals expected to soar due to the energy transition trend, resource nationalism is also on the rise, which, however, could result in more regional cooperation in the commodity industry, Fastmarkets understands.

“It would be a trend to see more regional cooperation in the future, such as joint ventures, so that producers each other can exchange technologies and qualify for local subsidies,” a battery maker source in East Asia said.

While domestic demand is entering a transitional period in the world’s biggest battery metal producing country, an increasing trend has been observed in China setting up joint ventures overseas.

In April, South Korean chemical company LG Chem reportedly joined forces with China’s Huayou Cobalt to build a factory for nickel, cobalt and manganese cathode precursor materials in South Korea.

Early in March, Chinese battery material producer GEM announced that it was establishing a joint venture precursor with SK on and ECOPRO Materials in South Korea.

This came after US President Joe Biden introduced the IRA in August, with tax credits up to $75,00 for the qualified EV purchases, aiming to encourage local mining and manufacturing, and wane demand off its non-free trade partners, such as China.

Market sources are concerned that resource nationalism could fracture battery supply chains, and eventually they would have to resort to regional cooperation to cope.

“The regionalization would also bring forward cooperation in other forms, since the full industrial chains can hardly be done within one single country; just look at the US, where mining resources are not really rich,” a veteran nickel trader said in eastern China.

4. Will the cobalt market become oversupplied?

With mining company CMOC having reached a consensus with state-owned miner Gécamines on royalties, which were at the root of a dispute that led last year to an export ban April 19, market participants are talking about how this will affect the cobalt supply and also the possibility of an oversupplied market in 2023.

Expectations of an oversupply have kept cobalt hydroxide prices depressed in recent weeks, and cobalt hydroxide prices have reached the lowest level in three years.

Fastmarkets’ cobalt hydroxide index 30% Co min, cif China was calculated at $8.12 per lb on April 21, down by $0.26 per lb from $8.38 per Ib on April 14, and down by $0.26 per lb from $10.54 per Ib on January 6. The index is now at its lowest level since it was launched in February 2019.

“An oversupply will continue in the cobalt hydroxide market because a large volume of cobalt hydroxide from CMOC will arrive in the second half of this year, and now we are all holding watchful attitude to see when those materials will actually arrive,” a cobalt sulfate producer said.

In addition, further cobalt supply is also expected to come from mixed hydroxide precipitate (MHP) in the second half of 2023.

“It is expected that the new production of MHP will bring at least 10,000 cobalt tonnes in the second half of 2023, which will undoubtedly bring greater pressure to the already surplus market,” a second cobalt sulfate producer said.

5. Natural or synthetic graphite anode under ESG concerns

The awareness of environmental, social and governance (ESG) concerns is increasing throughout the supply chain of new energy vehicles with automakers looking to reduce the carbon intensity of the battery materials they use, among which graphite presents a key problem for the industry.

Synthetic graphite is now holding a major share in the anode market with its advantages of consistency and better performance against the corresponding natural material.

But the graphite market is looking at new ways to balance the use of both materials to reduce the carbon footprint in processing.

Synthetic anode production can be over four times more carbon intensive than natural graphite anode production, due to its use of fossil fuels by-products as a feedstock and energy intensive production process, according to sources.

“It’s hard to say whether synthetic anode would hold its lion’s share in the long-term given its high carbon foot-print and higher production costs, especially outside China. Meanwhile, given that majority of China’s graphitization capacity is in Inner Mongolia, China, more coal-based energy would be consumed, hence more carbon-intensive,” a graphite producer source said.

While the issue of overcapacity overhangs the anode market for now, adding pressure to raw materials prices, market participants expressed concerns over long-term availability of upstream graphite.

Fastmarkets’ latest price assessment for graphite flake 94% C, -100 mesh, fob China was at $680-720 per tonne on Thursday, down by 15.66% from the start of the year.

At the same time, the price assessment for graphite spherical 99.95% C, 15 microns, fob China was at $2,200-2,500 per tonne on Thursday, down by 11.32% from the start of 2023.

“It looks to me like any overcapacity is largely limited to the mid-stream processing side [spherical producers and anode producers]. China seems to be importing flake graphite now, which suggests Chinese under capacity,” a second graphite producer source said.

Meanwhile, the coke used for synthetic graphite is a fossil fuel derivative, availability of which would also be a question for the industry, according to sources.

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