Chinese ternary material makers eye higher nickel content products

SHANGHAI, Jul 9 (SMM) – The market share of ternary materials with higher-nickel content will continue to expand in the second half of the year, as new subsidies on electric vehicles drive the transition towards more advanced batteries and as foreign manufacturers enter Chinese markets. The upside room in high-Ni ternary materials share, however, will be capped as 5- and 6-series materials will continue to dominate the market. 

China opened its auto battery market to foreign suppliers as it scrapped the list of recommended battery suppliers in June, as part of its efforts to wean the sector off government support.

Domestic production of ternary materials started to fall in May, and slid considerably in June, dragged by lower consumption of new energy vehicles (NEVs) on the end of the grace period for NEV subsidy cuts in late June. 

The 5- and 6-series ternary materials were mostly affected by the output cuts, while 8-series materials, with higher nickel content, received minimum impact as some battery producers shifted capacity to produce high-Ni products, in response to new NEV subsidy policies that promote vehicles with longer driving ranges and higher energy density. 

Greater demand for high-Ni materials could be evidenced by higher proportions of NCM 811 and NCA in the ternary materials market, which expanded to 12% and 6% in June, respectively, compared with 8% and 2% in January. 

The proportion of NCM 523 shrank to 54% in June, from 60% in January, and that of NCM 622 also dipped to 25%, from 26% during the same period. 

SMM data showed that domestic output of ternary materials fell 23.3% from the previous month in June, the biggest monthly loss since 2018, standing at 15,725 mt. 

Output in the first half of the year advanced by 34.9% from the second half of 2018, and by 67.2% from January-June of 2018, to stand at 111,000 mt. Production is expected to recover to 134,000 mt in the second half of 2019, SMM assessed. 

Last month, demand for NEVs was squeezed by cheaper automobiles with lower emission standards, as sellers destocked on the imposition of new, tougher national emission standards for cars. A clutch of widely reported fire incidents also dampened NEV sales. These are likely to further weigh on consumption of NEVs in the short term. 

Poor consumption will depress domestic production, sales of NEVs and power batteries in the second half of the year, despite a possible rebound in operating rates across battery mills in the fourth quarter on the release of new models. Most carmakers will take summer breaks in a traditional slow season in the third quarter. 

Production of Lithium iron phosphate (LFP) material also shrank last month as major battery mills slashed production on all types of battery products in June. 

LFP batteries are mainly applied in new energy busses and special NEVs, due to their safety performance and low-costs. But constrained access permits for special NEVs limitedly improved demand for LFP materials in the first half of the year. 

However, demand is likely to find support in the second half of the year, as key battery producers transformed capacity from lower-Ni products to high-Ni and LFP batteries, and as the applications of LFP batteries in low-speed passenger vehicles and special NEVs will further expand. 

SMM expects production of LFP materials to rebound in July, and amount to 68,000 mt in July-December. This compared with output of 41,000 mt in January-June. 

China's production of lithium manganese oxide (LMO) material is expected to grow and stabilise in the second half of the year, posting 33,000 mt in July-December, after a seasonal lull lowered output by 8.6% on the month to 4,900 mt in June. 

Promising performance of consumer batteries markets such as electric vehicles and power tools will continue to support consumption of LMO. In the power battery sector, NEV subsidies cuts may prompt battery producers to mix cheap LMO with other ternary materials as feedstock to reduce costs. 

SMM expects production of lithium cobalt oxide (LCO) to stand at 29,000 mt in the second half of 2019, compared with 27,000 mt in the first half of the year, supported by demand from 5G base stations. 

LCO demand is likely to receive a boost in 2020 as 5G technology encourages the replacement of mobile phones.