Government efforts to encourage the adoption of electric
vehicles (EVs) in countries around the world are shifting away
from subsidies in favor of carrot-and-stick regulations,
according to industry observers speaking at
Fastmarkets’ 11th Lithium Supply and Markets
Conference in Santiago in June.
Legal limits on carbon emissions are becoming stricter and
will further boost EV take-up in the coming decades, even as
government funding for EV manufacturers fades, with the most
obvious example of this swing being China’s
approach to electric mobility.
"Chinese subsidies have so far been equal to or surpassing
production costs, but from next year and going forward, they
will be minimal to none," the chief executive officer for
electrochemical cathode materials producer Pulead Technology
Industry, Yuan Gao, said.
"As EVs move to mass production and while governments
continue to face fiscal constraints, subsidies cannot last
long," Adam Panayi, managing director at research firm Rho
Motion, said, adding that governments will have greater
influence through legislation.
Most EV producers in China may struggle to make a profit
after subsidies are phased out, the lead consultant for ESK
Consulting, Jaime Alée, said. For now, these companies
intend to increase the EV share of the automotive market while
suffering losses, Alée added.
The China 6 emission regulation is a clear example of the
country’s push for environmentally friendlier
solutions in the vehicle industry via legislation. This new law
will further cut the maximum carbon and nitrogen oxide
emissions per unit and will be implemented in two phases
– the first in July 2020 and the second in July
2023.
"The China 6 requirements are going to be more difficult to
meet than the Euro 6 [the latest iteration of the European
standards for acceptable limits for exhaust emissions of new
vehicles sold in the EU, introduced on 2015], which were
already hard," Kevin Riddell, senior manager for consultancy
LMC Automotive, said.
"Internal combustion vehicles are at the top of what they
can achieve in emissions reduction," Panayi added.
Market participants generally believe that EV battery output
will be the main driver of lithium demand for the foreseeable
future. ESK estimates that lithium consumption will total
382,000 tonnes in 2019, rising to 1 million tonnes in 2025.
These projections for continued strong demand growth come at
a time when the lithium market has been correcting downward,
following large price spikes over 2017 and 2018, driven by hype
and supply bottlenecks in battery raw materials markets.
Low prices are expected to support further robust
consumption trends, but the pullback in the market could weigh
on the financing of new lithium projects, laying the ground for
another rollercoaster pricing cycle.
Fastmarkets-LME partnership will pave way for
lithium futures contract
The London Metal Exchange is partnering with Fastmarkets to
promote the uptake of a transparent and representative global
lithium price, the exchange said on announcing the tie-up in
June.
The partnership will pave the way for the LME to launch a
lithium futures contract.
"In recent years there has been unprecedented price
volatility in the lithium market, driven particularly by
explosive EV battery demand," LME head of market development
Robin Martin said in a press release.
"The LME has been approached by a number of industry
players, including producers, end-users and several leading
automotive firms, to develop effective lithium price-risk
management tools. We are delighted to be announcing the next
step in that process today," he added.
The exchange had been working closely with the global
lithium industry over the preceding 18 months to meet the need
for transparent and robust reference prices, it said.
In 2018, the LME requested proposals from several price
reporting agencies (PRAs), including Fastmarkets, with the
objective of selecting the lithium market’s
preferred price provider.
"The LME, on the basis of market views, selected Fastmarkets
as its pricing partner due to its lithium prices being widely
used across the industry, combined with its leading pricing
capabilities," the LME press release said.
"Due to its chemical nature, lithium is not suitable for a
physically delivered contract, hence the LME, together with its
advisory group, believe that partnership with a price reporting
agency represents the best route to a tradeable contract," it
added.
The LME will continue to work with its advisory group and
other industry participants to gauge the appropriate timing for
a launch of a lithium contract.
Fastmarkets has identified the ex-works China market as the
most liquid spot market for battery-grade lithium at
present.
More information on the LME’s lithium pricing
mechanisms is expected to be published in due course.