Low Carbon Travel – New Energy Battery Industry Chain Outlook

SHANGHAI, Apr 1 (SMM) - 

On March 31, SMM's new energy research manager Mei Wangqin delivered a keynote speech on "Low Carbon Transportation - Outlook for the New Energy Battery Industry Chain" at the SOCDA Salon online live streaming conference, hosted by SMM in collaboration with SOCDA. At the meeting, Mei Wangqin said that the LFP battery, with its low costs and safety performance, will gradually increase its market share in 2021-2023, and ternary and LFP batteries will occupy different market segments in 2024-2025 according to their technical characteristics.

In 2021, prices of raw materials rose as a whole. Among them, the greatest increase was found in lithium carbonate, whose prices went up 574% since the beginning of 2021, resulting in a year-on-year jump of 83% in battery cell costs. However, lithium carbonate output will be rising amid increasing production at overseas new mines and brine lakes during 2023-2023, and lithium carbonate prices may drop.

I. Industrial development analysis of global and China's new energy vehicle and LFP battery market

In 2022, global sales of new energy vehicles is expected to total 6.79 million units, up 114% year-on-year, of which China is expected to sell 3.54 million units, with a penetration rate of 13.4% and a compound growth rate of 28% over the next five years.

With the policy support from national and local governments for the new energy vehicle industry, such as subsidies, purchase tax exemptions, and other measures, coupled with the rapid penetration of battery companies and vehicle enterprises, the convenience and cost effectiveness of new energy vehicle have improved as well as the intelligence, which are recognised by more consumers and have boosted the sales of new energy vehicle.

The safety performance and high cost effectiveness of LFP have boosted its demand, and the demand for LFP will increase sharply supporting by the future energy storage market. LFP market in China would expand in 2022.

1. The two main cathode systems, ternary and LFP, will co-exist for a long time in the future to meet the needs of different segments and have specific growing space.

2. The improvement in sintering leads to higher compaction density, which is conducive to enhanced energy density. The enhanced low temperature performance of spherical LFP is more suitable for overseas areas where the temperature is low.

3, The costs and safety performance enable LFP to gain all-round development in fields like new energy vehicles, domestic and overseas energy storage, electric two-wheelers and new consumer goods, etc.

4、The improved low temperature and energy density performance are suitable for overseas energy storage (requiring low temperature resistance) and the Western power battery markets (requiring low temperature resistance and great durability)

II. An Analysis of Supply and Demand Structure of Lithium Salt in China and Forecast of Lithium Prices

Historical lithium salt prices trend: in 2015, the growth rate of supply was slower than that of the demand, and the lithium prices rose sharply. Since 2020, lithium prices have leaped three times due to the rigid demand for new energy.

Historically, the prices of lithium salt have experienced two great fluctuations. From 2016 to 2017, with the rapid increase of demand for new energy and the lagging supply of upstream lithium ore and lithium salt companies, the prices rose sharply. The highest price of battery-grade lithium carbonate rose to 172,000 yuan/mt. With the gradual increase in supply, lithium prices went down. At the end of 2020, with the large demand for power battery-oriented ternary and LFP materials, the demand for lithium salt increased. The mismatch of supply and demand in the short term enabled the prices to rise significantly.

Comparing the prices of lithium carbonate to those of lithium hydroxide, the trends of both are the same. There was a spread between these two in 2016-2017, mainly because of the limited lithium hydroxide technology and the long downstream certification period. The available lithium hydroxide products had limited inventory, and the prices were firm, which widened its spread with lithium carbonate.

Short-term and long-term forecast: in 2021, the supply and demand were greatly mismatched, and prices rose. In 2023-2024, the production of overseas newly-built ores and salt lakes will increase, and the prices may drop. The outbreak of the energy storage market from 2025 will reverse the prices again.

In 2021-2022, China's lithium carbonate supply was limited by overseas resource capacity. In 2022, there will be a supply gap of about 7%, and the annual average price will rise obviously.

From 2023 to 2024, the new expansion projects of overseas ores and salt lakes will be put into production, and it is expected that the supply of lithium resources will be replenished in time. Chinese lithium salt manufacturers will maintain a high operating rate. The largest downstream market of lithium, the new energy vehicle market, is not expected to grow as fast as the initial period, and the marginal growth of supply will exceed the demand. It is expected that the lithium carbonate market will once again enter a short period of decline.

In 2025, the global energy storage market will explode. The sales volume of new energy vehicles will climb to 18 million, and the demand for lithium will increase obviously. In 2025, the global lithium resources planning production projects may face further bottlenecks. The gap may reappear, and the prices will rise.

III. Analysis of factors that cause shortages of battery raw materials

1. Resource constraints: The new capacity of lithium resources will not be released on a large scale until after 2022-2023, and there are still risks that the actually commissioned capacity will be lower than expected. It is expected that there will still be a supply deficit of 63,000 mt of LCE in 2022.

Taking the lithium industry as an example. The sharp increase in lithium prices this year is mainly due to resource constraints. From the perspective of different types of raw materials, more than 95% of spodumene has been locked up in the form of off-take agreement or equity. The lithium extraction from overseas salt lakes is slow and uncontrollable. The domestic production is also low due to a lot of constraints, such as the low lithium content in salt lakes in Qinghai, and the poor mining conditions (poor infrastructure and high altitude) in Tibet.

2. Environmental protection restrictions: VC, phosphoric acid and other upstream chemical products are subject to high environmental impact assessment pressure, and the review cycle of new projects is long. It is expected that the situation of short supply will continue.

In 2019, a policy was introduced to rectify the phosphorus related industry,making it more difficult to secure approval for new phosphoric acid projects, and hence a monopoly was formed in the phosphoric acid market. Similarly, the approval of new iron phosphate capacity is also difficult, and it takes an average of 1.5 years to expand capacity.

The additive VC, one of the core raw materials of the electrolyte, is in short supply due to the surge in downstream demand and soaring demand for LFP. New VC projects also face the problems of difficulty in obtaining approvals. VC demand from LFP battery is 3-5 times that from NMC battery. The orders of leading VC companies are scheduled until mid-2022. 

In the field of fluorine chemical, PVDF production expansion cycle and downstream customer certification cycle are relatively long, especially battery-grade PVDF. In addition, the core raw material R142b is a second-generation refrigerant. Due to the implementation of the quota system for environmental protection reasons, the capacity expansion is limited, making it more difficult to expand PVDF production.

3. Technical bottleneck: Limited by tight capacity, the batery separator market is expected to see a supply deficit in 2022. Due to the high technical threshold, the increase in lithium hexafluorophosphate capacity is dominated by top producers, and the commissioning of new lithium hexafluorophosphate capacity is slow.

4. Power rationing and production restrictions: During the National Day holiday last year, many local governments issued energy consumption dual control documents, forcing some industries with high energy consumption and high pollution to stop production. The production of various materials in the lithium battery industry was also restricted.

5. Geographical factors: China's cobalt and lithium raw materials are highly dependent on imports. In the future, affected by factors such as the pandemic and geopolitics, the uncertainty over the supply of various raw materials will increase

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]