Power rationing hits China’s battery materials sector, tightens lithium supply

Ad-hoc power rationing in China in response to high summer temperatures – of 40 degrees Celsius, or even higher – has led to lithium production in the country coming under pressure

Production of other battery raw materials such as cobalt and nickel sulfate is also affected, though much more minimally in comparison.

On August 14, the Sichuan provincial government ordered all industries – apart from several key sectors - to fully suspend production from August 15 to August 20 to ease pressure on local power supply capacity.

The move came amid a prolonged drought in the province this year that has reduced hydropower supply in the region.

Sichuan province is a hub for lithium production in China. Its lithium salts production accounted for approximately 29% of the country’s total in the first half of 2022, according to an estimate by Vicky Zhao, Fastmarkets’ senior analyst for battery raw materials.

Several major lithium producers in Sichuan have either suspended production or lowered their operating rates in response to the power crunch, sources told Fastmarkets.

“We have halved our production due to the power rationing in Sichuan province,” a lithium producer source said.

Underlining the seriousness of the power crunch, a second lithium producer source in the province said: “The city where our factories are based have rarely experienced power shortages before. This is the first time that we have halted production due to power rationing.”

A third lithium producer source said: “Our production has been suspended since Monday August 15. Prior to this, we were required to stagger our electricity consumption.”

Market participants are uncertain about whether the restrictions on power consumption in Sichuan province will continue after August 20.

But what they are certain of is the effect that tighter supply of lithium salts will have on prices.

“This round of power rationing in Sichuan will support lithium prices. It takes time to restart after production stoppages since battery-grade lithium products require stability during production.

As such, the supply of lithium salts will tighten in the second half of August,” a lithium trader said.

The third lithium producer source corroborated this.

“Due to the power supply restrictions, our lithium salts production in August has been significantly impacted. Our deliveries scheduled for August have to be postponed to September. The supply tightness will surely support lithium prices,” the source said.

Fastmarkets’ assessment of the lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 475,000-495,000 yuan ($70,215-73,171) per tonne on August 11, up by 2,000-10,000 yuan per tonne from 473,000-485,000 yuan per tonne a week earlier.

Fastmarkets’ assessment of the lithium hydroxide monohydrate, LiOH.H2O 56.5% LiOH min, battery grade, spot price range exw domestic China was 470,000-480,000 yuan per tonne on August 11, narrowing upward by 2,500 yuan per tonne from 467,500-480,000 yuan per tonne a week earlier.

Downstream demand bigger concern for cobalt market

Meanwhile, the eastern Chinese province of Zhejiang has also implemented measures to limit power consumption in response to the extremely hot weather in August.

But sources at a majority of cobalt producers located in the province have said that the measures introduced on August 8 had had limited impact on their production.

“We haven’t stopped cobalt production. The Zhejiang government is requiring industries to limit power consumption, and they are not enforcing a suspension of production,” a cobalt producer source told Fastmarkets.

A second cobalt producer source concurred, saying production had not been affected too greatly.

“But power supply to our office at the plant in Zhejiang has been limited. Air conditioners are not allowed to be switched on,” the source said.

A third cobalt producer source said that the effect of Zhejiang’s power rationing on China’s cobalt market had been limited due to low buying interest downstream.

Market sources that Fastmarkets spoke to are more concerned with a possible shrinking of downstream demand for cobalt in the event that southern China starts to implement power rationing as well.

“Downstream production of nickel-cobalt-manganese (NCM) material requires more power, so if regions in southern China carry out power rationing, the production of NCM will be affected, which would in turn curb demand for cobalt,” a downstream precursor materials producer source said.

Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China was 55,000-57,000 yuan per tonne on August 12, unchanged from August 10.

Minimal impact on nickel sulfate for now

The production of nickel sulfate in China has so far experienced minimal effect from power rationing in the country. But there are concerns that more provinces might start to implement the measure amid high temperatures.

“We are not affected by the power cuts and production is running normally,” a nickel sulfate producer source in eastern China told Fastmarkets.

“It seems that the impact on production right now is only limited to Zhejiang and Sichuan province, while Hunan province where many nickel sulfate consumers and producers are located is unaffected for the moment,” he added.

Limited capacity for processing raw materials such as mixed hydroxide precipitate into nickel sulfate has led to a tightening of supply of the latter recently.

“Prices for nickel sulfate are now in an uptrend because of the limited capacity, and if there are further production curbs amid the persistently high temperatures all over the country, prices will keep increasing,” a nickel trader told Fastmarkets.

Market participants are now paying close attention to developments in China’s power sector to anticipate supply and price movements for nickel sulfate.

Fastmarkets assessed prices for nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China at 36,500-38,000 yuan per tonne on August 12, up by 500 yuan per tonne from 36,000-37,500 yuan per tonne a week earlier.

Visit our dedicated battery raw materials page to discover more insights on the factors at play in the industry in 2022 and beyond.

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