Gloomy EV demand continues as upstream battery material prices squeezed

Market participants are expecting the situation to remain unchanged in the first quarter of this year, sources said. Chinese electric vehicle (EV) output fell by 46.6% and sales were down by 49.9% month on month in January.

The poor performance in EVs can be largely attributed to the termination of government subsidies and significant price fluctuations in EV sales prices, according to the China Association of Automobile Manufacturers.

Similarly, China’s lithium iron phosphate (LFP) battery output totaled 18.3 GWh in January, down by 46.0% month on month. The country’s nickel cobalt manganese battery output was 9.8 GWh in January, down by 46.9% month on month, according to the China Automotive Battery Innovation Alliance.

“Due to the cancellation of China’s original EV subsidy from 2023 onward, much of the EV demand expected for the first quarter of the year was already exhausted in the fourth quarter of 2022. So, in the near term, I don’t expect a rebound in EV demand, which means demand for upstream battery materials will also remain weak,” an analyst source said.

The analyst added: “Some local governments, however, have rolled out new subsidies to boost EV consumption since the start of the year. But it will take some time to see any notable effect on demand.

“The whole EV battery supply chain, from cathode makers all the way down to EV producers, are sitting on large stocks of their own products,” a lithium trader said.

Multiple market participants echoed the same view, saying that even if the demand for EVs improved, the supply chain will consume its existing stock before placing new orders. This means any improvement in EV demand may take longer to translate to new demand for battery raw materials.

“The macro-economic environment is not favorable. [Chinese] Citizens are very cautious toward consumption, especially when it comes to something as expensive as a car,” a lithium producer source said.

Market participants therefore remained pessimistic on the near-term outlook for EV consumption, and consequently the demand for upstream battery raw materials.

“It may not be until April that we see some recovery in the EV consumption, which may then finally filter upstream to the battery metals markets,” a cathode producer source said.

Some market participants were even more skeptical toward a recovery EV consumption in the short term, citing traditionally weak second quarter EV sales which will likely not be conducive to improvement in raw material demand before the third quarter.

Battery materials prices under pressure

The lackluster Chinese EV market led to thin demand for battery raw materials, including lithium, cobalt, and manganese sulfate, which put downward pressure on the prices for these materials. The bearish short-term outlook for battery materials demand has only further added to the pressure.

Lithium market participants widely noted a dearth of activity in the spot lithium market, where there were very few offers or deals due to thin demand from the disappointing EV sales.

“Lithium producers are seeing increasing inventories due to low demand, adding further pressure to lithium prices,” a battery materials producer source said.

Given the limited spot demand and accumulating upstream stocks, sellers continually lowered their offers over the recent two months to boost sales. However, those efforts yielded little fruit due to lack of consumer demand and buyer caution.

“The lithium carbonate prices are drifting lower and lower every day by 2,000-3,000 yuan per tonne. Buyers have adopted a wait-and-see stance because they expect the downtrend to continue,” a third lithium trader said.

Fastmarkets’ weekly assessment of lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 410,000-440,000 yuan ($59,761-64,134) per tonne on Thursday February 16, down by 21,000-35,000 yuan per tonne from 445,000-461,000 yuan per tonne on February 9.

Prices for cobalt sulfate, another key raw material for batteries, experienced similar downward pressure in January and February for many of the same reasons as lithium, but there was a slight increase late in the week ended February 17.

Direct downstream buyers in the battery sector have yet to begin purchasing large volumes of the material.

Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China, was 39,000-41,000 yuan per tonne on February 17, up by 1,000-2,000 yuan per tonne from 38,000-39,000 yuan per tonne February 15. The price was at 46,000-47,000 yuan per tonne at the beginning of 2023.

Current prices for cobalt sulfate remain at their lowest since early August 2019 despite the slight increase.

“It is hard to say whether recent increase for cobalt sulfate prices will continue in next few weeks because the downstream EVs sector shows no recovery at all. The current increase was elicited mainly by trader procurement. If downstream demand continues to be weak, I think prices will return to a downtrend,” a cobalt sulfate producer source said, adding that falling lithium metal prices will have a knock-on effect on other battery raw materials.

A similar situation has also been troubling the Chinese spot manganese sulfate market.

Roughly 70% of manganese sulfate produced in China is sold through long-term contracts, with the remainder sold on the spot market, sources told Fastmarkets.

Compared with other battery raw materials such as cobalt and lithium, manganese is somewhat more affordable.

Some sources said that a spot price slightly above 6,000 yuan per tonne for manganese sulfate only covers production costs and leaves little in the way of profit for producers. Spot trades have been limited and spot manganese sulfate prices have remained largely flat since August of 2022, a further indication of weak EV demand.

Fastmarkets’ price assessment for manganese sulfate 32% Mn min, battery grade, exw mainland China was 6,000-6,300 yuan per tonne on February 16, unchanged from previous week, and down by 200 yuan per tonne from 6,200-6,500 yuan per tonne two weeks earlier.

The assessment had been flat at 6,200-6,500 yuan per tonne since August 25, 2022, until the week to February 9.

A manganese sulfate producer source told Fastmarkets some of his buyers asked him to postpone delivery of materials sold through long-term contracts.

“The plant I work for has plenty of Mn sulfate in stock, so we don’t need to buy extra material,” the downstream producer source said.

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