LFP battery resurgence is altering price dynamics

Changing preferences for lithium-ion battery chemistries in China have altered relative lithium prices

The strong resurgence in the use of lithium iron phosphate (LFP) batteries in electric vehicles (EVs) produced by automotive manufacturers in China since 2020 has resulted in the rapid growth in demand for technical-grade lithium carbonate – altering the traditional price dynamics in lithium salts in both the domestic Chinese and seaborne Asian markets.

China’s technical-grade and battery-grade lithium carbonate prices have both been on an upward trend after bottoming out in the second half of 2020 amid robust demand from the battery supply chain, and the upturns accelerated at the start of this year, with the price gap between the two grades narrowing considerably in February.

Technical-grade lithium carbonate is typically used to produce LFP batteries, while battery-grade lithium carbonate is mostly used to produce cobalt-rich nickel-cobalt-manganese (NCM) lithium-ion batteries – including NCM111 (Ni:Co:Mn: 1:1:1), NCM523 and NCM622 batteries. The nickel-rich NCM811 battery is produced using battery-grade lithium hydroxide.

Fastmarkets assessed the Chinese technical and industrial-grade lithium carbonate spot price at 79,000-81,000 yuan ($12,134-12,441) per tonne on Thursday March 18, up by 150% from 30,000-34,000 yuan per tonne between late June and early July 2020 – when the price plunged to its lowest level of the past year.

And Fastmarkets’ weekly price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 85,000-90,000 yuan per tonne on March 18, up by 124% from 37,000-41,000 yuan per tonne between early July and early October last year.

Technical-grade lithium carbonate was mostly trading at a discount of 7,500-8,500 yuan per tonne against battery-grade lithium carbonate in the first half of 2020 in the domestic Chinese market. Since mid-2020, the discount mostly hovered around 5,500-6,500 yuan per tonne, before hitting a low of 2,000 yuan per tonne in mid-February, according to Fastmarkets’ data.

“The elevated technical-grade lithium carbonate [price] underlines the stockpiling drives among consumers who are anticipating increased demand for LFP batteries. Meanwhile, squeezed supplies have prompted lithium producers to keep raising their offers, some of which are increasingly closer to the level for battery-grade materials,” a producer said.

LFP batteries are one of the earliest well-developed EV battery technologies in China and are well known for their stable and safe performance. They had been widely used in various types of EVs as a result, but in the second half of last decade, faced with appealing government incentives, most original equipment manufacturers (OEMs) in the country switched to NCM lithium-ion batteries, particularly pure EVs, because their higher energy density ensures a longer driving range per single charge.

But the OEMs’ willingness to use NCM lithium-ion batteries – especially for nickel-rich NCM811, which generates the highest energy density among all NCM batteries – has recently been tempered by fast-rising cobalt and nickel prices this year, amid tight availability and just as subsidies are being phased out.

Prices for cobalt sulfate and nickel sulfate, two key raw materials to produce NCM lithium-ion batteries, were up by 43.86% and 13.11% respectively as of March 19, despite some recent retreats, according to Fastmarkets’ data.

China produced 9.56 gigawatt hours (GWh) of LFP battery power in the first two months of 2021, accounting for 44.3% of the total battery output and up by 624.2% compared with the same period in 2020. NCM battery power was 12 GWh over the same period, accounting for 55.7% of the total and up by 385.1% from January-February 2020, according to the latest data released by the China Association of Automobile Manufacturers (CAAM).

A precursor materials producer told Fastmarkets that LFP batteries are likely to account for half of the market share over the course of 2021. Additionally, the slower pace of adoption of nickel-rich NCM batteries among OEMs has resulted in battery-grade lithium carbonate trading at a premium above hydroxide in China since early December last year – as opposed to the discount seen in the previous two to three years.

Seaborne Asian market mirrors trend

The seaborne Asian market is mirroring the trend in the Chinese domestic market, with the price gap between battery-grade and technical-grade carbonate also narrowing significantly.

Technical-grade lithium carbonate was mostly traded at a discount of $1.25-2.35 per kg against battery-grade lithium carbonate at spot cif China, Japan and South Korea basis in the second half of 2020, while the discount has been $0.25-0.75 per kg most of the time so far this year, according to Fastmarkets’ data.

In addition, the seaborne Asian market also witnessed a narrowing gap between battery-grade lithium hydroxide and carbonate, which has more actively responded to the rally in China so far this year.

Battery-grade lithium carbonate was trading at a discount of $2.15-2.25 per kg against the equivalent grade of lithium hydroxide, but the gap has narrowed to $1.25-1.75 per kg so far this year, Fastmarkets’ data shows.

“The South Korean and Japanese lithium import markets are trying to keep in alignment with China, but so far prices are comparatively more aligned in the carbonate market,” a Japanese trader said.

The battery-grade lithium carbonate price in the seaborne Asian market has risen by nearly 52% so far this year, while the equivalent-grade hydroxide price has gained about 28%, according to Fastmarkets’ data.

With market share of LFP batteries likely to hit 50% in 2021, changing battery chemistries will continue to have a huge sway on prices in the market.

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