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Poor consumption of power batteries grows pessimism over cobalt prices
Jul 1,2019 13:45CST
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Demand is unlikely to pick up before the end of the third quarter

SHANGHAI, Jul 1 (SMM) – SMM retains its outlook that lower demand from the power battery market will depress production of ternary materials in the third quarter. Slow trades will also cause cutbacks, or delay in commissioning for lithium salts capacity. A falling market of ternary materials will limit the upward momentum in cobalt prices, despite firm demand expected from the digital market. 

Producers of ternary power batteries slashed output more than expected as price cuts on cars with lower emission standard, ahead of the implementation of tougher VI emission standard, attracted part of the demand for new energy vehicles (NEVs). Lower production of power batteries caused a buildup in inventories across cathode materials producers. 

A saturated market of new energy buses received limited impact from the car price reduction. This, coupled with rising demand from the energy storage market, will underpin production of lithium iron phosphate (LFP) batteries.

SMM learned that major battery mills cut a third of their production in June, with current operating rates below 30%. A traditional slow season in July will continue to drag on the output of power batteries, but at a slower pace. Demand is unlikely to pick up before the end of the third quarter. 

Brisk demand from markets of electric bicycles and power tools supported production of ternary consumer batteries and lithium manganese oxide (LMO) batteries. Demand from the electronics sector is expected to stabilise in the second half of the year as consumers await significant progress in the 5G application. This is likely to keep production of lithium cobalt oxide (LCO) batteries little changed. 

Prices of refined cobalt in the international market continued to slip last week, while major producers in China held offers steady, waiting for overseas prices falling to levels of domestic prices. Average traded prices in the domestic market edged down as most downstream consumers remained hesitated. 

Higher inventories intensified destocking inclination across sellers of cobalt hydroxide. This, combined with lower prices of finished products and caution of consumers, lowered prices of cobalt hydroxide last week. 

SMM assessed prices of refined cobalt at 231,000-244,000 yuan/mt in the week to Friday June 28, down an average 3,000 yuan/mt from the previous week. Prices of cobalt hydroxide stood at $8.8-9/lb, down an average $0.15/lb.

The cobalt salt market extended weakness as downstream cutbacks sparked worries across producers. However, high costs kept producers of cobalt salts from lowering offers significantly. 

Prices of cobalt sulphate came in at 38,000-40,000 yuan/mt, down an average 1,000 yuan/mt on the week, while prices of cobalt chloride held flat at 45,000-47,000 yuan/mt, according to SMM assessment. Prices of nickel sulphate also came flat on the week, at 23,500- 26,000 yuan/mt.

Prices of cobalt (II, III) oxide continued to fall in a buyers’ market, but relatively stable consumption from LCO market capped the decline. SMM assessed prices of cobalt (II, III) oxide at 164,000-169,000 yuan/mt, down an average 3,500 yuan/mt on the week.

Ternary precursor traded at firm prices last week, but cash flow issues drove a few sellers to cut offers considerably, which may weigh on prices in the short term. 

In the week to June 28, prices of NCM523 stood flat on the week, at 77,000-79,000 yuan/mt, and prices of NCM622 limitedly changed at 83,000-85,000 yuan/mt.

Prices of lithium carbonate extended their declines as sharply lower demand drove sellers of battery-grade lithium carbonate to reduce prices in the negotiations for July’s contracts with cathode materials mills. Demand for industrial-grade lithium carbonate also weakened, as the material is partly used to produce battery-grade lithium carbonate. 

SMM assessed prices of battery-grade lithium carbonate at 72,000-75,000 yuan/mt, down an average 1,000 yuan/mt on the week, and prices of industrial-grade lithium carbonate at 65,000-68,000 yuan/mt, flat from a week ago.

Last week, prices of battery-grade lithium hydroxide continued to trend downwards amid cooler consumption as restructuring in the new energy sector following NEV subsidy cuts drove most producers of ternary cathode materials into production cuts. 

As of Friday June 28, prices of battery-grade lithium hydroxide (coarse particle) shrank an average 500 yuan/mt on the week, to stand at 83,000-85,000 yuan/mt, SMM assessed.

Despite stable demand from the digital, electronic sector, expectations of lower raw materials prices kept battery producers from purchasing and this depressed prices of LCO. 

SMM assessed prices of LCO used to produce 4.35V batteries at 206,000-216,000 yuan/mt, down an average 4,000 yuan/mt from the previous week.

Poorer consumption from battery mills grew inventories across producers of ternary materials. The 5-series materials were most impacted by battery output cuts, given the huge base of 5-series materials and diverted demand for 8-series materials.

Prices of NCM523 materials fell 1,000 yuan/mt, to stand at 131,000-139,000 yuan/mt, and prices of NCM 622 also shrank 1,000 yuan/mt, posting 147,000-154,000 yuan/mt.

Prices for LFP edged lower last week. SMM learned that smaller orders prompted a major producer of LFP batteries to lower production in June. Orders are expected to improve in July after sluggishness through the third quarter.   

Prices of LFP used in power batteries stood at 47,000-50,000 yuan/mt in the week to June 28, down an average 1,000 yuan/mt on the week, SMM assessed.

Prices of LMO fell slightly amid stable trades last week. Medium-sized and large producers reported firm orders on the month, but spot trades were less active, driving some mills that used to engage in cash transactions to accept late payments. 

SMM assessed prices of LMO, used in high-energy-density lithium-ion batteries, dipped an average 500 yuan/mt on the week, to stand at 30,000-38,000 yuan/mt, and prices of LMO used in motive batteries at 47,000-50,000 yuan/mt, flat on the week.

Market commentary

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