Slowing EV demand, subdued outlook weigh on China’s battery materials prices
China’s battery materials markets have been generally softening due to weaker downstream buying appetite that stems from lower demand from the battery sector – especially nickel cobalt manganese (NCM) lithium-ion batteries – and from bearish sentiment
Domestic battery production equated to 62.8 gigawatt hours (GWh) of power in October, up by 150.1% year on year and up by 6.2% month on month, according to the China Association of Automobile Manufacturers (CAAM).
Still, the pace of month-on-month growth in October slowed from 18.1% in September, its data also showed.
This also contrasts with domestic installed capacity – a measure of how many of the batteries are installed in power systems such as electric vehicles (EVs) – of batteries in power systems of 30.5 GWh in October, CAAM data showed.
This was less than half of that month’s output, was down by 3.5% from September and was the first month-on-month decline since August – all of which reflect slowing demand from downstream power systems, of which EVs are the largest part.
Most downstream battery materials producers are in no hurry to buy more raw materials and are focused on destocking, sources claimed, citing weaker demand from the EV sector.
With China’s EV subsidy due to end at the start of 2023, market participants are worried that EV consumption in China may be distorted by consumers bringing forward their purchases of EVs to the final weeks of this year.
Chinese authorities announced on December 31 last year the discontinuation of the country’s EV subsidy policy from the end of 2022. Under the existing policy, the subsidy for pure electric vehicles (PEVs) with a driving range of 300-400km is 9,100 yuan (around $1,300) per vehicle, while the subsidy for PEVs with a driving range of 400km or more is 12,600 yuan per vehicle.
“We already feel that the EV production in China has slowed,” a battery materials producer source said. “EV producers raised their production one or two months ago so that their new output could be sold before the subsidy ends. But the EVs they are producing now cannot enter the sales stage until 2023.”
Chinese output of PEVs totaled 762,000 units in November, up by 87.6% year on the same month of last year but up by only 0.93% month on month. This contrasts with growth of 9.3% in October, according to CAAM.
“The annual sales and production targets EV producers have for this year have now been satisfied,” a cobalt trader said. “EV producers have slowed their production. And consequently, upstream battery and cathode makers have slowed their production.”
Market participants also speculated about the possibility of production cuts in downstream NCM battery production over the rest of December given the worsening outlook for EVs in China, especially during the first quarter of 2023.
“Battery makers are likely to cut production by 20% or even more,” a cobalt producer source claimed. “Although so far there is no confirmed news of a production cut, weaker demand for battery raw materials is an indicator.”
NCM batteries, which require nickel sulfate, cobalt sulfate, and battery-grade lithium salts, are likely to be at the forefront of any downstream production cuts due to their higher production costs when compared with lithium iron phosphate (LFP) batteries, market participants said.
Fastmarkets calculated the overall cost for NMC811 packs at $181 per kWh earlier in May compared with $152 per kWh for LFP.
Battery materials prices under pressure
The bearish outlook for EV demand, slower demand for battery metals and the unconfirmed speculation about production cuts at battery producers have all contributed to the downward pressure on battery metals prices, including lithium, nickel and cobalt.
“Downstream battery and cathode makers are destocking their lithium salts,” a lithium producer source said. “While the market is expecting lithium prices to extend lower in the near term, consumers are holding a watchful stance, which is leading to limited spot trading.”
“We have reached our sales target for 2023 – there is no point for us to stock lithium at current high prices,” a cathode materials producer source said.
As well, consumers are proving resistant to higher lithium prices, which has capped spot trading and pressured prices lower recently.
“I’ve heard downstream orderbooks are still strong but [producers] are curbing output for a range of reasons,” a nickel producer source said, identifying the major reason as high input costs.
Fastmarkets’ assessment of the lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range, exw domestic China was 570,000-585,000 yuan per tonne on December 1, narrowing downward by 5,000 yuan per tonne from 570,000-590,000 yuan per tonne a week earlier.
The latest assessment is down by 20,000 yuan per tonne from 590,000-605,000 yuan per tonne on November 17, the highest since Fastmarkets started to assess the price in October 2017.
Similarly, nickel sulfate prices dipped on Friday after five weeks of gains. Fastmarkets’ assessment of nickel sulfate, min 21%, max 22.5%; cobalt 10ppm max, exw China was 39,500-40,500 yuan per tonne on December 2, down by 3% from the previous week.
“It’s also that time of year to liquidate inventories, plus the coming cancellation of EV subsidies… I don’t think the situation will turn around until next year,” the nickel producer source added.
Prices for cobalt sulfate, another key battery material, have continued to fall since the middle of October, succumbing to pressure from ample stocks and slow downstream buying.
“Buyers of cobalt sulfate keep pressing down prices and some desperate sellers who want to boost cash flow simply accept lower prices,” a cobalt sulfate producer source said.
“We are in no hurry to buy more cobalt sulfate because we still have stocks,” a cobalt sulfate consumer source told Fastmarkets. “Currently, we have no production cut plan for December and our original plan to ramp-up production has also been canceled [amid the worsening EV demand outlook].”
Fastmarkets’ assessment of cobalt sulfate 20.5% Co basis, exw China was 54,000-56,000 yuan per tonne on December 2, unchanged from November 30. This is down by 8,000-9,000 yuan per tonne from 63,000-64,000 yuan per tonne on October 14, when prices started to fall.
“We are holding a watchful attitude toward the end of the subsidy policy of 2023. If there will be some further transitional period to end the policy, it might stimulate EV sales - otherwise, there will be no motivation in early 2023,” a second cobalt salts producer said.
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