By Nicholas Larsen, International Banker
Link to Energyland
It was among the best-performing commodities during the previous two years, as the breathless rally beginning in late saw the price of lithium skyrocket, largely off the back of booming sales of electric vehicles (EVs). Indeed, Bloomberg&#;s calculations found that the total spot value of lithium consumption soared from around $3 billion in to $35 billion in . But the picture in could not be more different, as the market price of lithium has spectacularly crashed back down to earth, thus begging the question of what has happened to trigger such a dramatic reversal.
As a crucial raw material of the batteries used in EVs and electronic devices such as mobile phones, lithium is often named &#;white gold&#;, with these industries increasing their dependence on the silvery-white metal in recent years. The surge in demand for lithium batteries amidst a China-led EV boom&#;in the face of a largely constrained global supply of lithium that could not keep pace with it&#;underpinned the blistering price rally observed throughout and much of .
But a combination of key market factors has led to a major turnaround in the trajectory of the benchmark price of lithium carbonate, which is used to produce the lithium hydroxide contained in electric-vehicle (EV) batteries. Prices have collapsed from all-time highs reached in mid-November of CNY 597,500 per tonne to CNY 319,500 per tonne by the week ending March 17&#;a near-47-percent drop that has seen prices return to levels last seen in January .
On the demand side, this crash can be explained by the decidedly less bullish sentiment for EVs transpiring in China, with the expiry of a more than decade-long programme of subsidies for EV purchases (alongside the end of tax cuts on combustion-engine cars) in addition to the unusually extended Lunar New Year celebrations this year eroding sales of new cars in January. &#;There has been persistent weakness in China,&#; according to Jordan Roberts, a lithium analyst at Fastmarkets. &#;The market is waiting to see the impact from the reduced new energy vehicle subsidies and is concerned by low household confidence, which is tied to the country&#;s property crisis.&#;
By enabling price parity with conventional cars with internal combustion engines, these subsidies were crucial in spurring a national shift to EVs over the last couple of years, during which the EV market in China experienced phenomenal growth. But following the massive 90-percent growth recorded in , sales of new-energy cars that include pure battery EVs and plug-in hybrids fell in January by 6.3 percent year-on-year to 408,000 units, the China Passenger Car Association (CPCA) confirmed. And with no evidence of the subsidies being renewed, analysts are now expecting EV sales in China to remain lacklustre throughout , further adding to the lithium market&#;s increasingly bearish mood.
&#;New EVs will be less supportive of sales growth this year. Apart from the announced renewal of the vehicle purchase tax exemption policy for new energy vehicles (5% tax exemption is around CNY), there has been no indication that there will be a renewal of the cash subsidies on EVs,&#; Dutch bank ING noted in late February. &#;The fiscal burden has risen, and the government may not want to spend on subsidies to boost consumption when the economy is recovering. After the fiscal-driven spike over the past few years, EV sales will slow.&#;
Abhishek Murali, EV analyst at consultancy Rystad Energy, meanwhile, told the Financial Times that &#;within the automotive industry, there is some consensus that the rapid growth observed in and may not be seen this year&#;.
Mid-February also saw reports emerge that the world&#;s biggest lithium-ion battery manufacturer, China&#;s CATL (Contemporary Amperex Technology Co., Limited), had begun offering discounts on batteries sold to certain Chinese EV companies, such as Nio Inc. (NIO) and Zeekr, thus reflecting the ongoing downturn in the lithium price. Such discounts are reportedly being offered to enable CATL&#;s customers to lock in battery purchases&#;the most expensive component of EVs&#;at below-market prices if they agree to purchase at least 80 percent of the batteries they require for their EVs from CATL, on the assumption that lithium-carbonate prices will continue falling significantly. CATL held around 37 percent of the global market share in and offered a discount of 7 percent from established prices to a Chinese EV maker in January, an unnamed source told Reuters. &#;It&#;s very much a market share game,&#; Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, explained to Reuters. &#;This is, I think, in part, a price war.&#;
For more Lithium Batteryinformation, please contact us. We will provide professional answers.
But while demand for lithium has been subdued, many believe the expanding supply outlook for the metal is mainly what is pushing prices lower this year, with a wave of fresh supply expected to come online from facilities in China, Australia and Chile. Five analyst forecasts, including ones from Bank of America (BofA), JPMorgan Chase and Morgan Stanley that were reviewed by Bloomberg in mid-January, for instance, anticipated production increases of between 22 percent and 42 percent in alone. &#;Supply is coming on stream faster than you can say &#;boo&#;. Demand remains strong, but prices have been unsustainable for some time now,&#; analyst Dylan Kelly of Ord Minnett recently told Mining.com.
And in a late-February report, Goldman Sachs stated that the spot price of lithium carbonate would decline to $34,000 per tonne in the next 12 months, from an average of $53,304 this past year, with a hefty 34-percent year-on-year growth in global lithium supply led by Australia and China as the chief contributing factor. &#;Over the next 9-12 months, we are progressively more constructive on base metals, whilst expecting a move lower in lithium prices alongside cobalt and nickel,&#; the commodities research report noted. &#;Hence, whilst a recovery in EV sales into &#;23 Q2-Q3 could temporarily lift sentiment and support falling battery metal prices, the likely supply surge and downstream overcapacity are set to bring lithium prices down subsequently in the medium term.&#;
The global supply outlook has been further boosted since Goldman&#;s report by the announcement in early March of the first-ever lithium deposit to be discovered in Iran&#;s mountainous western province of Hamedan. At an estimated 8.5 million tonnes, the discovery would be the second-largest in the world, behind only Chile, which the United States Geological Survey (USGS) estimates to hold 9.2 million tonnes. It would also represent around 10 percent of the world&#;s total proven deposits. &#;For the first time in Iran, a lithium reserve has been discovered in Hamedan,&#; Mohammad Hadi Ahmadi, an official at Iran&#;s Ministry of Industry, Mine and Trade, was quoted as saying on Iranian television.
China is also expanding its lithium-supply capacity from lepidolite, which, while considered the most abundant lithium-bearing mineral, is deemed an inferior source of lithium due to its higher cost of extraction as well as the higher emissions levels associated with its mining. But according to UBS, lepidolite will provide 280,000 tonnes of lithium for China in , equivalent to 13 percent of the global lithium supply, compared with the 88,000 tonnes it furnished last year.
But not everyone is in lockstep that a further significant selloff in lithium is guaranteed. Perhaps most notably, the world&#;s top lithium producer, Albemarle, is maintaining its bullish view on lithium prices and EV sales, attributing January&#;s decline in China&#;s car sales to temporary Lunar New Year weakness and predicting that China&#;s EV market will grow by a hefty 40 percent this year, equivalent to three million more vehicles. &#;As China reopens, we expect moderation in EV demand to be short-lived with medium and long-term demand remaining robust,&#; Albemarle&#;s chief executive officer, J. Kent Masters, recently confirmed.
And while substantial new sources of supply may come online eventually, some analysts do not see this having a sustained impact on prices in . Scotiabank (Bank of Nova Scotia), for instance, believes the recent selloff in lithium equities has been largely unjustified for this reason. &#;While the year ahead has a slight chance to see temporary softness in lithium spot prices, beyond , we are stumped as to where supply will come from to satisfy demand,&#; it recently noted, as quoted by the Financial Times. And Trafigura recently echoed this sentiment. &#;I really don&#;t think there&#;s any reason to believe that so many tons can magically appear this year to return the market to balance,&#; Claire Blanchelande, a lithium trader at the commodities trading firm, told Bloomberg in January. &#;The pain is not over yet.&#;
The company is the world’s best 20KW Off Grid Inverter supplier. We are your one-stop shop for all needs. Our staff are highly-specialized and will help you find the product you need.