Market participants expect to see no sign of recovery in
lithium prices before the end of 2020 at least, with the global
spread of the Covid-19 virus outbreak creating "headwinds" for
the battery raw material in an already weak price
Lithium prices have been on a steady downtrend over the past
two years after additional capacity expansions outstripped
demand growth. The virus outbreak - which originated in
December 2019 in China before spreading globally - has added
further bearish pressure to lithium prices over the first
quarter of 2020, leading to talks about how low the metal price
can go before bottoming out.
Lithium carbonate is a critical component of electric
vehicle (EV) batteries and is set to play a key role in the
electrification of transportation - a target shared by a
growing number of countries worldwide.
Faltering Chinese demand
The novel coronavirus has hit the Chinese economy
hard and China is the leading lithium consumer and the location
of most of the world’s lithium conversion
capacity. China’s battery-grade lithium carbonate
price accelerated its decline throughout 2019, falling by 40.5%
in the period between January 2019 and mid-March 2020.
This was mostly due to China’s decision to
reduce its new energy vehicle (NEV) subsidies in the second
quarter of 2019, which depressed demand from the EV sector.
Adding to that, growing supplies and fiercer competition in the
market added further downward pressure to prices.
Battery-grade lithium carbonate prices had remained
relatively steady for much of the first two months of 2020
following a bearish 2019. But at the beginning of March, market
participants started to report deals at lower levels as some
producers dropped their offer prices to secure business in a
flat market due to weak demand from cathode producers.
Fastmarkets’ price assessment for the lithium
carbonate, 99.5% Li2CO3 min, battery grade, spot price range
exw domestic China, was 43,000-49,000 yuan ($6,115-6,969) per
tonne on Thursday March 19, 2020. In comparison, on January 3,
2019, the price was assessed at 73,000-83,000 ($10,633-12,090)
yuan per tonne.
The Asian seaborne lithium spot market also witnessed a
continuous decline between January 2019 and March 2020,
following the continuous fall in China’s prices
over the same period.
Fastmarkets’ price assessment for lithium
carbonate, 99.5% Li2CO3 min, battery grade, spot price was
$8-9.50 per kg ($8,000-9,500 per tonne) on a cif China, Japan
and Korea basis on Thursday March 19, 2020, and this is down by
35.2% from $12.5-14.5 per kg on January 3, 2019.
Similarly, European and US lithium prices have trended lower
over the past two years, catching up with the price movement in
the more liquid Chinese lithium carbonate spot market.
EV sales drop
Adding to the current bearish picture, the 2019-nCoV
outbreak has caused a series of disruptions to lithium supply
chains in China, although it seems that the impact on demand
sentiment has exceeded the impact on supplies.
The output and sales of new energy vehicles (NEVs) in China
slumped over 75% year on year in February 2020 due to the
suspension of operations during the peak period of the virus
outbreak in the country, according to data released by the
China Association of Automobile Manufacturers (CAAM). CAAM
called for relevant government departments to keep optimizing
and continue with the NEV subsidy policy to support the
development of new vehicles.
China’s NEV subsidies were cut by over 50% on
June 26, 2019, and now only subsidize the production of EVs
with higher driving ranges and high-energy high-density
batteries. The reduced subsidies have put pressure on NEV
enterprises, leading to a fall in both NEV output and
However, in January this year, China's Ministry of Industry
& Information Technology (MIIT) said there would be no
significant reduction in China’s NEV subsidies in
2020. The general principle for the new policy in 2020 is to
stabilize market expectations, guarantee healthy and
sustainable development and build confidence for the whole
industry, minister Miao Wei said in January.
MIIT has not yet released any details of the policy for this
Lithium carbonate is a key component for both EVs and
large-scale battery storage for renewable energy production,
and it is set to play an increasingly significant role in the
global shift to a greener economy.
But the current downtrend in prices looks set to persist in
the second and third quarter of the current year amid sluggish
demand and fears of a global economic slowdown, sources said.
Key major lithium producers reported losses for the 2019
financial year and announced suspensions to their capacity
expansion projects due to the weak prices, despite anticipating
a growth in demand in the medium term.
The weaker business landscape is expected to reduce demand
further and disruption to supplies is likely to increase while
the global spread of the 2019-nCoV pandemic forces more
countries into lockdown.
As a result, it will be crucial, following the peak of the
pandemic, how governments - many of which, had previously set
out ambitious decarbonization targets - support the market
growth for NEVs with demand incentives to help the sector reach
a much wider market and be in a position to benefit from
economies of scale.