No let up in lithium price weakness, sources say

By Charlotte Radford, Carrie Shi
Published: Monday, 06 April 2020

Weakness in the price of lithium shows no sign of easing in the near term, market participants tell Fastmarkets' lithium reporters.

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 environment. 

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. 

Lithium carbonate 99.5% min, battery grade, spot price range exw domestic China, yuan/tonne

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 sales. 

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 year.

Bright future
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.