China’s output of nickel cobalt manganese (NCM) batteries declined by 4.48% to 17.7 GWh in June, CABIA figures show.
The dominance of lithium iron phosphate (LFP) batteries in China and waning appeal of NCM batteries is ultimately the result of the lower costs for LFP batteries than that for NCM batteries, market participants told Fastmarkets.
LFP batteries accounted for 65.81% of China’s total battery output in the first six months of 2023, while NCM batteries made up 33.91%. This compares with the same period last year, when LFP accounted for 61.10% of total production and NCM 38.77%, according to CABIA.
LFP batteries are well known for their stable and safe performance, despite their overall low energy density compared with NCM batteries. The higher the energy density an electric vehicle (EV) battery has, the greater the driving range of the vehicle on a single charge.
LFP batteries are made of lithium carbonate and iron phosphate, with lithium carbonate considered the expensive raw material.
Fastmarkets’ assessment of the lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 288,000-310,000 yuan ($40,169-43,237) per tonne on Thursday July 13, widening downward by 2,000 yuan per tonne from 290,000-310,000 yuan per tonne a week earlier.
The latest assessment is up by 130,000-138,000 yuan per tonne from the year-to-date low of 150,000-180,000 yuan per tonne, reached on April 20.
But in NCM batteries, apart from lithium hydroxide which is roughly as expensive as lithium carbonate, the prices of nickel and cobalt are also high and extremely volatile, leading to much higher production costs for NCM batteries than for LFP batteries.
The cost of a LFP battery cell is about 15-20% lower than that for NCM 523 (Ni:Co:Mn 5:2:3) and NCM 622 battery cells, and more than 20% lower than an NCM 811 battery cell, according to Vicky Zhao, senior battery raw materials analyst at Fastmarkets.
Fastmarkets’ assessment of the lithium hydroxide monohydrate, LiOH.H2O 56.5% LiOH min, battery grade, spot price range exw domestic China was 270,000-290,000 yuan per tonne on July 13, narrowing downward by 10,000 yuan per tonne from 270,000-300,000 yuan per tonne a week earlier.
The latest assessment is up by 80,000-90,000 yuan per tonne from the year-to-date low of 180,000-210,000 yuan per tonne, reached on April 20.
Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China was 46,000-47,000 yuan per tonne on July 14, unchanged from July 12, but up by 12,000 yuan per tonne from the year-to-date low of 34,000-35,000 yuan per tonne, reached on May 10.
China’s EV sales are dominated by low-to-medium end EV models with prices below 300,000 yuan per unit. Those models are generally equipped with LFP batteries due to their lower costs
In addition, LFP and NCM 523 or NCM 622 batteries now do not vary significantly in terms of performance, according to a second Chinese cathode producer source. He noted that, as a result of the material cost gap between the two, LFP batteries are taking further market share from NCM 523 and NCM 622 batteries.
“High-end EV models with a driving range above 600km typically adopt nickel-rich NCM batteries, which LFP batteries cannot replace. But on the other hand, high-end EVs are a very niche market considering their high sales prices, which is not supportive enough for the NCM market,” the second Chinese cathode producer source said.
ESS further supports LFP adoption
China’s National Energy Administration banned the use of NCM batteries in medium-to-large energy storage plants in June 2022, while LFP is the dominant chemistry used in energy storage systems (ESS), another supportive factor for the LFP market that NCM does not enjoy.
Energy storage battery sales in China totaled 31.5GWh in the first six months of 2023, according to CABIA, of which LFP accounted for 31.2 GWh.
“The demand for carbonate from ESS is playing an increasingly important role. Currently, the demand from ESS takes up roughly 30% of [total lithium carbonate demand in China], while in the same period last year, it accounted for less than 10%,” an analyst source told Fastmarkets.
Market participants widely expect the ESS market to continue growing for the remainder of the year.
“There’s a lot of room for the ESS market to grow since it is still very small market at the moment, which should further boost the LFP demand,” a Chinese battery producer source said.
Fastmarkets forecasts total battery energy storage system (BESS) capacity will expand to 2,520 GWh by 2033, with demand at 480GWh. Meanwhile, China will take more than 35% of the BESS market in 2023, the United States 21% and Europe 18%.
Upstream NCM markets also under pressure
Demand for battery metals is experiencing a patchy recovery in China after the country discontinued its subsidies on EV purchases from this year, sources have told Fastmarkets. While the LFP battery market is experiencing a more robust recovery, a slow recovery persists in the NCM battery market.
“Lithium is showing a better demand recovery than nickel, as the NCM market in China is not prevailing in comparison with LFP, which is more competitive in prices and safety,” a second Chinese battery producer source said.
A decrease in NCM’s overall market share has also taken a toll on the upstream raw material nickel, cobalt and manganese markets, with prices for these materials mostly trending downward throughout the first half of 2023.
The NCM market was further weakened by downstream producers’ intention to shift to LFP production from NCM in order to cut costs.
“More cathode producers tend to expect increasing LFP output instead of NCM, adding further pressure to the NCM battery raw materials markets,” a Chinese manganese producer source said.
Fastmarkets’ price assessment for nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China was pegged at 33,500-34,000 yuan per tonne on July 14, flat since June 30. The price had slipped from a year-to-date high at 39,000-40,000 yuan per tonne on February 17 and 24, steadily falling to a low of 31,000-32,000 yuan per tonne in late May.
The nickel and cobalt markets had recouped losses in the past few weeks but the upward momentum was recently put on hold amid sustained weak demand from the NCM battery sector, leaving the battery metals market in limbo.
“The rebound is more because of restocking demand, instead of any significant improvement in NCM consumption,” a Chinese battery materials producer source said.
“Manganese sulfate producers were already making thin profits even when the prices were at 6,000 yuan per tonne. Now the prices continue to decline amid weak consumption and accumulating stocks, which proves how weak the NCM battery market is,” a third Chinese cathode producer source said.
Fastmarkets’ price assessment for manganese sulfate 32% Mn min, battery grade, exw mainland China was 5,000-5,800 yuan per tonne on July 13, down by 200-300 yuan per tonne from 5,300-6,000 yuan per tonne a week earlier.
The latest assessment is down by 700-1,200 yuan per tonne from 6,200-6,500 yuan per tonne on January 5.
Sentiment remains largely bearish in the near term due to the poor prospects of downstream consumption from the NCM sector, according to sources.
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