FOCUS: European EV optimism unlikely to shake China’s cobalt, lithium prices

A slew of extensive stimulus measures to boost the adoption of electric vehicles (EVs) in Europe in the aftermath of the Covid-19 pandemic is unlikely to provide any immediate support to prices for cobalt and lithium in China, according to market participants.

In the past two weeks, several European countries, including Germany and the United Kingdom, either announced schemes to encourage the adoption of EVs or said they were working on such measures.

Early this month, Germany doubled the incentive offered to buyers of EVs as part of a €130-billion ($148-billion) economic-recovery package. Buyers of pure EVs will get a €6,000 subsidy from the government.

UK Prime Minister Boris Johnson is considering giving up to £6,000 ($7,652) to drivers who swap their petrol or diesel cars for EVs, according to a British media report. He is expected to announce the plan on July 6.

Incentives of this sort coupled with a recent restart of operations by automotive plants in Europe have improved sentiment in China where EV development has slowed down due to subsidies being cut in the past two years. Consumer confidence has also been dented by Covid-19.

Chinese output and sales for EVs tumbled by over 50% year on year in the first quarter of 2020, as a result of the Covid-19 pandemic delayed the restart of manufacturing after the January 24-February 2 Chinese New Year holiday and sapping appetite for large consumer goods.

Prior to the pandemic in the earlier part of this year, EV production and sales in Europe were growing at a faster pace than in China.

In the first quarter, Europe managed to increase its EV market share to 6.8%, compared with 2.5% in the same period a year earlier, according to data seen by Fastmarkets.

“The incentives announced recently in Europe are inspiring and could buoy sentiment in China and even underpin the prices [for relevant battery raw materials],” a trader said.

But most market participants agreed that the renewed focus on EV development in Europe was not likely to increase demand for cobalt and lithium significantly in the near future.

“I heard that some European car makers are looking to secure battery raw materials and have been having conversations with suppliers. But these are not for prompt use. Most of them are charting their demand for the next three years,” a distributor source said.

A battery cathode materials producer source noted that while the take-up rate for EVs in Europe has been quite steady despite the Covid-19 pandemic, the base for European product and sales is not high.
“It means that if you quantify the new demand for cobalt [and lithium], it wouldn’t be that significant,” the source said.

As such, no matter how aggressive the measures are in Europe, prices for battery raw materials in China are unlikely to be affected too much because the major consumption drivers are still in China, and will remain so in the foreseeable future.

Fastmarkets’ weekly price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 40,000-43,000 yuan ($5,660-6,085) per tonne on Thursday June 4, down by 1,000 yuan per tonne from 41,000-44,000 yuan per tonne a week earlier. The price has fallen by 13.5% from 45,000-51,000 yuan per tonne on February 27 when a downtrend began.

Fastmarkets’ assessment for cobalt sulfate 20.5% Co basis, exw China was 46,000-47,000 yuan per tonne on Wednesday June 10, unchanged week on week. Prices had gained some upward momentum in May due to cobalt hydroxide experiencing supply disruptions as a result of South Africa’s Covid-19 lockdown, but this petered out in early June when spot buying interest thinned.

“The stimulus in Europe will inject confidence into the market and demand will definitely increase in the future. But as for now, the impact remains limited and there has not been any additional support emerging for the lithium market,” a producer source told Fastmarkets.

The first battery cathode materials producer source pointed out that “the real driver of domestic prices [in China] will be the recovery of the domestic EV industry, which is still at a minimum.”

China’s installed capacity for EV batteries amounted to 3.51 gigawatt hour in May, down by 38% year on year, according to local media reports quoting statistics from a domestic consultancy.

Another crucial factor affecting the cobalt and lithium market in China this year – even as the domestic nickel-cobalt-manganese (NCM) lithium-ion batteries sector struggles to recover from the Covid-19 pandemic – has been a resurgence of lithium-iron-phosphate (LFP) batteries.

LFP batteries do not require any cobalt and its demand for lithium is also significantly lower compared with NCM lithium-ion batteries.

The production of one tonne of LFP cathode requires about 0.25 tonnes of lithium carbonate, compared with about 0.44 tonnes required in that for NCM cathode, according to market participants.

“Demand for NCM lithium-ion batteries hasn’t really recovered,” an analyst at an institutional investor said. “To make it worse, some [original equipment manufacturers] are developing models powered by LFP batteries, which will eventually replace some of the demand for the former.”

Fastmarkets will hold an hour-long webinar on Tuesday June 23 to discuss how Covid-19 has affected lithium markets with regard to supply, demand and prices. Registration for the free webinar is now open.