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Demand outlook for cobalt and lithium remain bleak albeit pre-holiday stockpiling 

iconDec 9, 2019 17:21
Restocking by battery material producers for the Chinese New Year holiday is about to conclude

SHANGHAI, Dec 9 (SMM) – Prices of cobalt and lithium products are likely to stay at low levels in the short term, as restocking by battery material producers for the Chinese New Year holiday is about to end, giving pressure to downstream demand. 

Inventory pressure through the cobalt and lithium chain is faced mostly by smelters, ores and intermediate product producers, SMM learned. 

According to SMM database, about 108,000 NEVs obtained qualification certificates in China in November, 30% higher from a month ago. New energy passenger vehicles accounted for the greatest share of 82.5%, while new energy busses took up the smallest 7.7%. 

The capacity of installed power batteries also climbed, by 54% on the month to stand at 6.3GWh in November. Among this, ternary batteries accounted for 60%; lithium iron phosphate (LFP) batteries made up 39%, up from a proportion of 25.9% in October.

China vowed to spur its new energy vehicle market that showed signs of slowing down, mulling a goal of 25% of all automobiles sold in the country to be electric by 2025, according to the latest auto industry development plan for 2021-2035, drafted by the Ministry of Industry and Information Technology on December 3. 

Last week, prices of refined cobalt stemmed their slide with support from pre-holiday stockpiling. The prices stood flat on the week at 250,000-270,000 yuan/mt, SMM assessed. Both enquiries and trades improved from the prior week

Prices of cobalt hydroxide also remained unchanged on the week at $9.6-10.4/lb. While enquiries increased, buying ideas from downstream buyers were lower and depressed trades. 

In the week ended December 6, SMM assessed the average prices of cobalt sulphate and cobalt chloride flat from a week ago at 42,000-45,000 yuan/mt and 51,000-54,000 yuan/mt, respectively. 

Prices of battery-grade nickel sulphate, meanwhile, shrank 1,250 yuan/mt on the week to 25,000-25,500 yuan/mt.

Downstream buying before holiday underpinned prices of cobalt salt. However, some downward risk is seen in near-term prices of cobalt sulphate on potential supply pressure given existing stockpiles at producers and previous selloff of precursors on weak demand. 

Prices of cobalt chloride will remain in premiums against cobalt sulphate as demand for cobalt chloride from the digital market weakens at a much slower pace and producers of cobalt chloride have greater bargaining power in a more concentrated market.

According to SMM assessments, prices of cobalt (II, III) oxide extended decline by 5,500 yuan/mt last week to 173,000-180,000 yuan/mt, on the back of subdued demand from downstream lithium cobalt oxide (LCO) producers. SMM learned that major mills of digital batteries continued to produce with supplied materials. 

For the week ended December 6, SMM assessed prices of ternary precursor NCM523 at 77,000-81,000 yuan/mt, down 7,000 yuan/mt from a week ago, with prices of NCM622 down 9,000 yuan/mt on the week to 87,000-91,000 yuan/mt.

High inventories drove downstream battery plants to destock and withhold from purchasing. This, coupled with ternary precursor plants’ efforts to achieve sales targets and their cash-in inclination, triggered the significant decline in ternary precursor prices last week. 

Prices of ternary precursor received limited impact from the stabilised prices of feedstock cobalt sulphate and a smaller decline in nickel prices. On the prospects of weaker demand at year-end, some small-sized plants have closed and large-scale mills mulled production cuts. 

SMM assessed prices of battery-grade lithium carbonate at 51,000-54,000 yuan/mt, down 1,000 yuan/mt on the week, and prices of industrial-grade lithium carbonate at 41,000-45,500 yuan/mt, 2,750 yuan/mt lower on the week. 

Cash flow burdens before holiday drove producers to destock at lower prices. Jiangxi market saw a significant decline in battery-grade lithium carbonate prices last week, which will put great downward pressure on near-term prices in the domestic markets. 

Greater inventory pressure drove producers of battery-grade lithium carbonate to cut offers. Prices of industrial-grade materials, meanwhile, followed prices of battery-grade lithium carbonate lower, but the decline was capped by relatively stable downstream consumption. 

SMM assessed prices of battery-grade lithium hydroxide (coarse particle) at 53,000-58,000 yuan/mt, down 500 yuan/mt from a week ago.

Consumption of lithium hydroxide is expected to remain sluggish till year-end with further downside potential in prices. But high-end prices may stabilise in the first quarter of 2020 with the start of procurement from Tesla’s China factories. 

Prices of lithium cobalt oxide (LCO), which is used to produce 4.35V batteries, continued to fall 10,000 yuan/mt week on week to 200,000-215,000 yuan/mt, SMM assessed. 

Orders from battery producers continued to fall, with the middle stream material plants and downstream battery plants in a destocking phase. Selloff by some LCO producers may further intensify bearish mood in the market. 

SMM assessed prices of ternary material NCM523 down 3,000 yuan/mt from a week earlier to 127,000-139,000 yuan/mt, weighed by oversupply. 

Prices of NCM622, meanwhile, fell at a faster pace by 4,000 yuan/mt on the week and came in at 146,000-156,000 yuan/mt, impacted by the pessimistic outlook for demand after domestic automaker BYD announced to continue to focus on LFP batteries. 

Some ternary material producers said they will cut output of NCM622 in 2020. Current inventories in the industry are at a reasonable level. 

SMM assessments showed that prices of LFP used in power batteries were unchanged on the week at 42,500-45,500 yuan/mt. 

With the rapidly evolving technology landscape, LFP producers that offer cutting-edge products enjoy stable demand from major battery companies, squeezing the share of other producers in the industry. 

SMM assessed prices of lithium manganese oxide (LMO) used in high-energy-density lithium-ion batteries down 500 yuan/mt week on week to 23,000-31,000 yuan/mt, with prices of LMO used in motive batteries also down 500 yuan/mt, standing at 35,000-38,000 yuan/mt.

LMO producers reduced prices to destock last week. SMM sees further downsides in LMO prices next week with pressure from the significant decline in feedstock lithium carbonate prices. 

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