Home Commodities Chinese lithium prices fall 30% as demand for electric vehicles weakens

Chinese lithium prices fall 30% as demand for electric vehicles weakens

by SuperiorInvest

Lithium prices in China have fallen by nearly a third in the past three months after weaker demand in the world’s biggest electric vehicle market interrupted a two-year rally in the key battery component.

Prices fell 29 percent from November highs to Rmb425,000 ($61,795) a tonne, according to pricing agency Fastmarkets, dragged down by concerns about the strength of demand for electric vehicles in Asia’s biggest economy.

“There is lingering weakness in China,” said Jordan Roberts, lithium analyst at Fastmarkets. “The market is waiting to see the impact of reduced subsidies on new energy vehicles and is concerned about low household confidence linked to the country’s property crisis.”

Lithium prices have skyrocketed since mid-2021 as surging EV sales have sparked a scramble among car and battery makers for the metal dubbed “white gold” for its importance to the clean energy industry. But weakening Chinese demand has raised doubts about how tight the lithium market will be this year, dragging down prices elsewhere in the world as well as shares of lithium producers.

Even so, Chinese lithium prices still remain at eight times their level a year ago and have yet to fall significantly before they approach production costs even at the most expensive mines.

Adding to the bearish sentiment, CATL, a Chinese company that is the world’s largest battery maker, was reported by local media and Reuters last week to have signed battery contracts with Chinese EV makers at discounted prices.

It reportedly managed to secure significantly lower lithium prices from its suppliers to around Rmb200,000, along with commitments from its automotive customers to buy 80 percent of their battery needs from it in a bid to increase market share.

BTR, a supplier of battery materials to CATL, which reportedly cut prices of key materials at the industry leader’s request, declined to comment.

Falling lithium prices and bearish CATL news sent shares of major lithium miners and processors such as US-based Albemarle and Chile’s SQM down nearly 10 percent on Friday. Both fell another 3.5 percent on Monday.

China’s electric car sales suffered a weak start to the year, although the Lunar New Year took place in January this year, when sales tend to fall. New energy vehicles, which include fully electric cars and plug-in hybrids, fell 6.3 percent to 408,000 units in January from the same month in 2021, according to data from the China Automobile Association.

Bar chart of units (mn) showing that China is leading the growth in sales of battery electric vehicles

Coupled with lower EV sales in Germany and Norway following subsidy cuts, Abhishek Murali, electric vehicle analyst at consultancy Rystad, said “there is some consensus in the auto industry that the rapid growth seen in 2021 and 2022 may not be seen. this year”.

But lithium for delivery to the US and Europe fell much less, falling only 10 percent to $70,500 a tonne over the same period, according to Fastmarkets.

Mathias Miedreich, chief executive of Umicore, a Belgian battery materials maker and major buyer of lithium, said the Chinese market has always been relatively isolated from the rest of the world.

“I don’t believe there is a structural reason why the price of lithium is falling in China. I think the Chinese lithium market has always been a bit separate from the rest of the world,” he said, adding that Western and Chinese lithium prices will continue to diverge as supply chains deglobalize.

Albemarle, the world’s largest lithium producer, maintained its bullish view on EV sales and lithium prices when it said last week that Chinese demand for EVs would grow 40 percent this year from last year, equivalent to an increase of 3 million vehicles.

Kent Masters, chief executive of the North Carolina-based company, said on an earnings call that “as China reopens, we expect the softening of EV demand to be short-term and medium- and long-term demand to remain strong.”

Scotiabank, which began covering the lithium market last month, said the recent selloff in lithium stocks was mostly unwarranted because there won’t be enough new supply even if demand for lithium declines from “super-growth” to “high-growth.”

“While next year has a slight chance of seeing a temporary softening in lithium spot prices, beyond 2024 we are uncertain where supply will come from to meet demand,” he said.

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