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Rubber and Wood June 29, 2023 03:54:40 PM

Chinese EV market slowdown slashes lithium, cobalt prices

Anil Mathews
ScrapMonster Author
Prices for metals used in electric vehicles are falling, with the value of lithium down nearly 50% from a recent peak last fall, as EV demand slows down in the largest market of China.
Chinese EV market slowdown slashes lithium, cobalt prices

TOKYO -- Prices for metals used in electric vehicles are falling, with the value of lithium down nearly 50% from a recent peak last fall, as EV demand slows down in the largest market of China.

With resource producers planning output expansion, prices for those materials, including cobalt and nickel, are expected to remain soft for some time. The trend, in turn, could bring down prices of EVs themselves, further fueling their spread, some experts predict.

Lithium carbonate, a benchmark for lithium prices, sold for an average of 177,500 yuan ($24,500) per tonne from mid- to late April in data from Argus Media. This was the lowest level in roughly 19 months and down 69% from the November 2022 all-time high in comparable data going back to 2016.

The prices started picking up again when producers cut output, then leveled off in June. On Tuesday, the 310,000 yuan price was down 45% from November's peak.

European spot prices for cobalt, which serve as the international benchmark, were around $15.25 per pound on Tuesday -- the lowest level since August 2020. This price is down 62% from the May 2022 peak.

Nickel futures closed Monday at $20,305 a tonne for three-month contracts on the London Metal Exchange, plunging 63% from the record high set in March 2022.

Prices of battery metals started to rally in 2021, reaching historic highs the following year. Fueling this trend was the anticipated demand amid the global shift toward reducing carbon emissions.

Chinese production of so-called new energy vehicles doubled in 2022, prompting a rush among battery materials makers to procure metals. But production at mines could not keep up with demand.

The supply constraints contributed to the higher prices. On the LME, speculators poured funds into nickel, betting on rising demand.

A turning point came when production of NEVs started to slow in China. By volume, NEV output shrank through the first two months of 2023 from September 2022, according to China's National Bureau of Statistics.

NEV production doubled last year, but the increase came to just 37% on the year during the January-May period of this year.

The expiration of EV subsidies in China at the end of last year slowed demand. The spread of lithium iron phosphate batteries for EVs, which do not use cobalt or nickel, also helped bring down prices.

The Chinese government is offering a tax break on NEVs, but experts believe that the effect on demand will be muted and short-lived.

"The appetite for households to spend is weak, and the uplifting effect will be limited," said Atsushi Takeda, chief economist at the Itochu Research Institute. The overall result is that manufacturers have stopped scrambling to procure battery metals, and prices have eased.

There are plans worldwide to step up production of battery metals. Australia produces half of the world's lithium, while Chile accounts for 20% to 30%. Many projects are afoot to step up production in both countries, whose combined output will double in 2030 compared with 2019, by one outlook.

Goldman Sachs expects lithium prices to fall sharply from current levels on the spot market. In Indonesia, the largest producer of nickel, manufacturers are preparing to boost output.

There are plans to expand cobalt output in key producer Congo.

"We will not see a major shortage of cobalt for quite some time," said Junichi Tomono of Japanese metal-trading company Hanwa.

The lower prices of battery metals are poised to advance the spread of EVs. The International Energy Agency said in an outlook released in April that if lithium prices continue to fall, it "could translate into lower battery prices."

With batteries accounting for a third of EV production costs, the impact of lower prices will be significant.

At the same time, lithium demand is expected to soar in the long run. The IEA sees demand ballooning to around 13 times 2021 levels in 2050 if net-zero greenhouse gas emissions goals are realized then. Cobalt prices will triple, and nickel prices will double, according to the agency.

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