The battery raw materials supply chain in China took a
breather after a week-long holiday to mark the
country’s national day in early October, with the
removal – partially or otherwise – of
extensive power cuts announced in late September in several
production hubs. The supply chain is still vulnerable to power
restrictions, however, which are likely to persist in
winter.
Similarly to those for other commodities such as
aluminium and zinc, the battery raw materials supply chain in
China – from the production of raw materials upstream
to cathode and anode materials downstream – has been
affected by power restrictions since September.
Most producers affected by the power cuts resumed
their operations to varying degrees after the October 1-7
public holiday. But fresh power restrictions will probably roll
out in certain cities soon, sources said, though they do not
expect such curbs to be too severe or prolonged for the battery
raw materials sector, since it is a crucial segment that feeds
into the government-advocated electrification of
transportation.
Nevertheless, power restrictions still create
uncertainties in both supply and demand, making market
participants seeking direction more cautious.
Anode materials production
China’s power crunch has affected the
production of anode materials more severely than other segments
in the battery raw materials supply chain, market participants
told Fastmarkets.
Power restrictions in the Inner Mongolia autonomous
region threaten to disrupt about 50% of the
country’s upstream anode materials production,
leading to surging prices and new projects shifting away from
the region. Inner Mongolia is a major production hub for
synthetic graphite due to its favorable electricity prices.
Graphitization capacity in Inner Mongolia accounts for almost
45-50% of the national total; the rest is in the
country’s southwestern region, where electricity
rates are also lower.
"Energy consumption controls [in Inner Mongolia] began
at the start of the year, tightening graphitization production
for synthetic graphite anode materials. While we saw some
operational improvements in the middle of the year, things have
been getting worse in recent days with more critical power
shortages," a China-based anode materials producer source
said.
China produced around 55,000 tonnes of synthetic
graphite in October, down by 5% from 58,000 tonnes a month
earlier, according to sources. The graphitization process is a
major part of synthetic graphite production. It consumes large
amounts of energy – around 12,000-16,000kWh –
to graphitize one tonne of synthetic graphite, according to
sources. This makes up 20-30% of its production
cost.
Meanwhile, market participants estimate that
graphitization accounts for about 50-60% of the total cost in
the production of synthetic anode materials.
"Tightening production capacity coincides with sound
demand from the downstream battery manufacturing sector, both
at home and abroad," a second anode materials producer source
in China said. "As a result, increasing production costs need
to be shared with downstream users. The synthetic anode
materials price has grown by 15% against the first
quarter."
While major producers in the country have sought to
integrate graphitization capacity with their operations, the
market is still reporting tight supply. About 50% of
graphitization is carried out separately from the rest of the
synthetic manufacturing process at independent facilities,
mostly in Inner Mongolia, sources said. Because of the power
woes in Inner Mongolia, producers might look elsewhere to set
up the integrated facilities, they added.
"With a power crunch in the short term coupled with
China’s long-term goal of decarbonization, the
expansion of the high energy-consuming graphitization lines
will become increasingly difficult, especially in northern
China. As such, we might see a growing trend of new operations
in provinces such as Sichuan and Yunnan," a third anode
materials producer source told Fastmarkets.
Cathode materials, feedstock salts
The recent power restrictions have disrupted
production of both cathode materials and feedstock salts,
including precursor raw materials and lithium salts that are
used to produce cathode materials.
Typical precursor raw materials include nickel
sulfate, cobalt sulfate and manganese sulfate, which –
together with lithium salts such as lithium carbonate or
lithium hydroxide – are used to produce
nickel-cobalt-manganese (NCM) precursor materials.
The production of cathode materials usually consumes
more power than that of their feedstock, according to market
participants. The production of NCM 622 (Ni:Co:Mn: 6:2:2) and
NCM 811 cathode materials in particular consumes the most
power, they said. This is influenced by the fact that the
production of nickel-rich NCM cathode materials involves two
rounds of sintering, they added.
Some 10,000-12,000kWh of electricity is needed to
produce one tonne of nickel-rich NCM cathode materials,
according to several cathode materials producers. "Producers of
cathode materials will be more cautious moving forward, and
prepare for temporary power restrictions from local authorities
that are made at short notice," a cathode materials producer
source said. The source estimates that any future power
restriction would not exceed 10-20% of their typical
consumption.
Market participants are finding it hard to gauge
whether the effect of power restrictions on cathode materials
will exceed that on their feedstock, which results in
uncertainties over demand along the value chain.
Demand trends
While market participants are unable to estimate the
extent of the disruptions in various segments of the supply
chain as a result of unpredictable power restrictions, they
have noticed consumers at every level becoming more cautious
about building up feedstock inventories. Demand for cathode
materials in the second half of the year failed to outperform
that in the first half, according to cathode materials
producers.
Meanwhile, some market participants have pointed out
that a potential shortage of anode materials is likely to damp
battery manufacturers’ appetite for cathode
materials. "If battery manufacturers can’t secure
enough anode materials, then they can’t produce
batteries. So there will be less need for them to buy cathode
materials," a precursor materials producer source
said.
But sources at one leading battery manufacturer and
several major cathode materials producers told Fastmarkets that
such concerns have yet to materialize in reality. The same
battery manufacturer source downplayed the supply bottleneck
affecting anode materials for its operations despite continuing
disruptions in the production of such materials due to power
cuts. "It is less likely for consumers to have difficulty in
sourcing anode materials," the battery manufacturer source
said. "The crucial issue is whether they can accept the
increasingly higher prices [for anode materials].
"As long as they keep purchasing anode materials,
demand for cathode materials won’t be affected.
However, it is a fact that all battery raw materials prices
have risen too quickly," the manufacturer source
added.
Additionally, demand for NCM cathode materials has
grown at a slower pace in recent months because of a worldwide
shortage of semi-conductors and a preference for lithium iron
phosphate batteries among producers of non-luxury electric
vehicles in China, according to sources.
Elsewhere in the upstream market, restocking appetite
for feedstock salts has waned amid caution among cathode
materials producers, resulting in a slower rally of lithium
prices in the country after the holiday earlier this
month.
Fastmarkets’ assessment of the lithium
carbonate 99.5% Li2CO3 min, battery grade, spot price range,
ex-works domestic China, was 190,000-200,000 yuan
($29,697-31,260) per tonne on Thursday October 21, unchanged
from a week earlier. Prior to the holiday, the price had been
mostly experiencing weekly double-digit increases in percentage
terms in September.
Fastmarkets’ assessment of the lithium
hydroxide monohydrate, 56.5% LiOH.H2O min, battery grade, spot
price range, exw domestic China, was 177,000-205,000 yuan per
tonne on the same day, narrowing upward by 2,000 yuan per tonne
from 175,000-205,000 yuan per tonne a week earlier. Prior to
the holiday, prices had been rising over several weeks in
September at rates of around 10%.
The range widened amid varied purchasing strategies
among leading and marginal consumers, and the rate of increases
slowed after the National Day break in comparison with pricing
sessions in September.
Auxiliary materials prices
Disruptions in the production of certain chemical
products that are essential for the production of cathode
materials and the upstream feedstock salts have been more
significant, according to market participants. "Production
costs for battery raw materials producers have risen sharply
with prices for electricity, sulfuric acid and liquid caustic
soda surging," a second cathode materials producer source
noted.
Spot prices for sulfuric acid and liquid caustic soda
have risen by about 50% compared with levels in the first half
of the year, according to market participants.
In addition, China will allow its floating electricity
prices to fluctuate by as much as 20% of the base price from
October 15. The floating price limit of 20% will not apply to
industries that consume high amounts of electricity, or if
their power demand is met via term contracts negotiated
directly between them and the grid corporation, the National
Development & Reform Commission (NDRC) said.
These elevated costs have either already contributed
to rising prices for salts such as cobalt sulfate and lithium
carbonate, or will do so in the future.
Fastmarkets’ price assessment of the
cobalt sulfate 20.5% Co basis, exw China, was 89,000-93,000
yuan per tonne on Wednesday October 20, up by 9,000-11,000 yuan
per tonne (12.35%) from a month earlier.
The processing fee for lithium carbonate has also
almost doubled due to soaring prices for liquid caustic soda, a
trader told Fastmarkets. The upward momentum for lithium
carbonate prices will be sustained, the trader said.