How Does the Lithium Battery Chain Response to Skyrocketing Nickel and Soaring Lithium Prices?

SHANGHAI, Mar 18 (SMM) - As of March 10, the average spot price of domestic battery-grade lithium carbonate successfully stood above 500,000 yuan/mt, crashing through the 500,000 yuan/mt mark for the first time in history. Lithium metal even jumped 100,000 yuan/mt in two straight trading days, and rose above the 3.1 million yuan/mt mark in one fell swoop. SMM expects that, as lithium hydroxide is still in short supply, the situation will continue in the future.

The recent rapid rise in the prices of nickel has triggered discussions on the cost of batteries and electric vehicles in the industry. SMM has conducted due research and gone through various news in the market, and finally integrated as below.

UPSTREAM RAW MATERIAL

According to SMM prices, domestic battery-grade lithium carbonate spot prices have been rising since the fourth quarter of 2020, and this is inseparable from the shortage of upstream lithium resources. According to the China Nonferrous Metals Industry Association, 65% of China's lithium minerals depended on imports in 2021. Therefore, with the explosive growth of the global new energy vehicles (NEVs) and energy storage field, as the world's largest producer of lithium salts and lithium batteries, China's lithium resources supply and demand imbalance gradually intensified.

In this case, the upstream enterprises have to secure the supply of raw materials by extending their footprint into lithium reserves. Take the news in recent days, for example, Zangger Mining disclosed its five-year development strategy. In the first phase (2022-2024), it will expand its business across the country, including stabilising the production of Qarhan Salt Lake’s lithium carbonate; putting Mamicuo Salt Lake lithium project into production; achieving major progress regarding new project mergers and acquisitions, with the target of 1-2 salt lake projects with a reserve of millions mt of lithium carbonate. In the second phase (2025-2027), the company will go global, continue to fully develop existing mineral resources, and achieve major economic milestones and revenues, with the goal of reaching the threshold of the world's top-tier mining group. In addition, the production of lithium carbonate from the Qarhan Salt Lake will remain stable; the lithium project in the Mamicuo Salt Lake will achieve designed capacity and start production expansion at an opportune time; and one new lithium mine in the salt lake will be built.

Ganfeng Lithium has also previously indicated that the Mt Marion spodumene project will undergo a technical expansion, with the project initially expected to be put into operation in the second half of 2022, and the existing production capacity is expected to increase by 10-15%, which is subject to results of process optimisation and the actual situation of the contact ore.

In addition, according to company insiders, the Cauchari-Olaroz brine lake project in Argentina is planned with 40,000 mt of battery-grade lithium carbonate, which is scheduled to be put into operation in the second half of 2022. While the fourth phase of the Mahong plant is ahead of schedule and may be put into operation in July, with products designed to mainly meet the existing lithium hydroxide capacity. In addition, Ganfeng Lithium's Marina project in Argentina and Sonora project in Mexico are also under construction and are planned to be put into operation in 2023.

And with the rapid rise in raw material prices, many lithium midstream and downstream enterprises have also joined the competition for mineral resources to control the costs. In 2022 alone, there are a number of enterprises including BYD, Zijin Mining, Sinomine Resources to open their own business world to lithium resources, lithium ore scramble is becoming increasingly heated.

Recently, according to SMM prices, the recent prices of lithium metal continue to rise. As of March 15, the average spot price of lithium metal has risen to 3.134 million yuan/mt, up 1.739 million yuan/mt from the beginning of the year, an increase of 124.66% during this period.

MIDSTREAM BATTERY COMPANIES

The rise in the prices of raw materials such as lithium metal have also driven up the prices of the main raw materials for power batteries - battery-grade lithium carbonate and battery-grade lithium hydroxide and other products. Previously there were even rumours that if the prices of lithium carbonate rose to more than 500,000 yuan/mt, midstream battery factories would face great cost pressure, hence a number of battery factories would chose not to buy goods or take orders to fight against the soaring prices of lithium carbonate. In this regard, CATL, EVE Battery, Gotion High Tech and other battery companies have said that the rumour is absolutely nonsense, and the current production schedule is normal to ensure downstream supply. Ganfeng lithium, a leading lithium mining entity, also confessed that there was no battery factory that did not buy goods, and its production lines were in full production.

In addition to lithium carbonate, the prices of several other main materials for power batteries are also high. Recently, the prices of lithium hydroxide have risen sharply following lithium carbonate, and the price difference between the two has narrowed further. According to SMM research, benefiting from the increase in orders for high nickel products in the terminal sector, the procurement demand for lithium hydroxide has increased, and the overall supply is still in great deficit, which is the reason for the faster price hike of lithium hydroxide. However, considering that at this stage the price difference between lithium hydroxide and lithium carbonate has gradually narrowed to a relatively reasonable range, and the manufacturers have recently completed their restocking, there might be only some modest restocking demand in the market. Hence the prices of lithium hydroxide may grow more slowly.

And a few moments ago, due to the sharp rise in nickel prices driven by Russia-Ukraine conflicts, nickel sulphate prices rose rapidly, once pulling up the cost of PCAM (precursor for cathode active materials) by 12%-16%, when, according to SMM calculations, surging nickel sulphate prices led to hike of ternary material prices by 16,000-25,000 yuan/mt, which raised the prices of corresponding ternary lithium battery by 31-47 yuan/KWh. Taking 70KWh electric car for example, the battery cost of an electric car inflated 2000-3300 yuan in just two days!

And in light of sharp rise in nickel prices, the cost of high nickel ternary products rose the most. According to intraday LME nickel prices, if salt plants calculate the cost according to intermediate products production costs, the prices of nickel sulphate re expected to rise to 80,000 yuan /mt, and the battery cost of a single electric car will rise 7,000 yuan!

It is worth mentioning that, at a time when the prices of nickel, cobalt, lithium and other metals continue to rise, recycling of battery scraps is also growing into a new blue ocean with very considerable scale. Previously, according to relevant media reports, the total accumulated amount of retired power batteries in China has reached nearly 200,000 mt in 2020. It is expected that by 2025, the figure may rise to nearly one million mt.

Tianfeng Securities previously pointed out that the new energy power batteries put into the market early have started to enter the retirement period. It is expected that by 2024, the cumulative volume of power battery scraps will reach 1.16 million mt. Donghai Securities also suggested that the market potential for power battery dismantling and recycling will reach 107.43 billion yuan by 2030.

Such a piece of cake worth hundreds of billions of dollars has naturally attracted widespread attention from the industry. And recently, the soaring prices of nickel, one of the metals required for power batteries, has also increased the cost of recycling enterprises to a certain extent. According to the current pricing rules for ternary power battery scraps: (SMM refined nickel price × nickel content % + SMM refined cobalt price × cobalt content %) × discount factor %, the rise and fall of refined nickel and cobalt prices can directly affect the final lithium battery scrap recycling cost. In addition, although lithium is not directly priced in the pricing rules, the rise and fall of lithium prices will also affect the formula’s "discount factor %".

For the current increasingly high lithium prices and uncertainties centering the price moves, the recycling enterprises mostly purchase in small quantities to maintain production just on demand, and raw material inventory could sustain the production for half a month to a month, according to SMM research.

And the violent fluctuation in the prices of nickel some time ago also caused recycling enterprises to suspend the procurement of scrap as the impact on the cost of recycling enterprises has been significant. In order to deal with such an abnormal price spike, the recycling enterprises chose to stay wait-and-see for the moment, and will wait for the nickel price to fall back and stabilise before arranging procurement plans.

DOWNSTREAM NEW ENERGY VEHICLE ENTERPRISES

Of course, the rise in raw material prices not only affects the midstream battery companies, downstream new energy vehicles are also "deep in the mud". A number of new energy vehicles, led by Tesla, announced price hike frequently due to falling new energy vehicle subsidies, rising raw material prices, global chip shortages and rising insurance premiums. After the very recent price hike announced on March 10, Tesla stated on its Chinese official website again on March 16 that the prices of its Model 3, Model 3 performance version and Model Y long range, performance version will be raised by 14,000-20,000 yuan.

According to recent data from the China Association of Automobile Manufacturers, in February this year, China's new energy vehicle output and sales stood at 368,000 units and 334,000 units respectively, up 2 times and 1.8 times year-on-year respectively. Although the factors including the current increase in the prices of raw materials have not led to a decline in the overall sales of new energy vehicles, it will have a greater or lesser impact on the development of new energy vehicles in the long term. Therefore, how to crack the rising prices of raw materials and ensure the safety of the industry chain has received a lot of attention from government departments.

At the Two Sessions this year, many experts put forward proposals to accelerate the improvement of the supply guarantee system of key mineral resources for the new energy industry. In view of the rapid increase in global demand for mineral resources with energy attributes such as copper, lithium, nickel and cobalt as well as their strategic importance, Ding Shiqi, a deputy to the National People's Congress, suggested that policies related to the development of key mineral resources for new energy should be further improved, the leading role of the government in the allocation of key mineral resources for new energy should be strengthened, and policies to support the whole industrial chain of key mineral resources for new energy should be increased.

In addition to accelerating the development of resources such as lithium ore, Xin Guobin, Vice Minister of Industry and Information Technology, also mentioned previously that the focus will be put on meeting the production needs of power batteries and other sectors, moderately accelerating the development of domestic lithium, nickel and other resources to combat hoarding, price gouging and other unfair competition.