SHANGHAI, Jun 28 (SMM) – Prices of lithium salts are expected to extend weakness in the third quarter as pricing will be more based on competitiveness and market demand after subsidy cuts on new energy vehicles (NEVs). But SMM remains optimistic about a recovery in demand after 3-4 months of sluggishness, as the NEV market undergoes restructuring.
Bearish sentiment, cooled consumption from the new energy market ahead of the official implementation of subsidy cuts weighed on prices of lithium carbonate in the second half of June, in line with SMM estimates.
Beijing cut off municipal subsidies for some electric vehicles on June 26, ending the three-month grace period for subsidy cuts.
This means that makers of pure electric-battery vehicles will no longer receive subsidies from the city government, but will still be eligible for central government subsidies.
Subsidy cuts sharply reduced demand for battery-grade lithium carbonate and lithium hydroxide, while moderately affected that of industry-grade lithium carbonate, which was underpinned by brisk consumption of lithium manganese oxide (LMO) from the electric bicycle market.
Lower subsidies caused cash flow issues across the industrial chain. This, together with slow-season demand from the electronics sector, drove production of cathode materials into a lower gear.
An SMM survey found that some lithium salt producers, including a major one in Jiangxi province, have cut output to avert an inventory build-up. This is expected to lower output of lithium carbonate by 10% and reduce output of lithium hydroxide by 30% on the month in June.
Downstream producers of batteries and cathode materials have started to upgrade their technology and adjust strategies to high-nickel materials, under the new subsidy policy that prioritised pure electric cars with a higher energy density.
Production of ternary cathode materials across Chinese producers used to focus on NCM523 and NCM622.