SHANGHAI, Jul 26 (SMM) - SMM China NMC and NCA precursor output stood at 359,000 mt in the first half of 2022, up 97% YoY, and a slight growth of 8% from the second half of 2021.
The output in the first half showed palpable YoY growth, with an average monthly output of more than 50,000 mt. The average monthly output in the first quarter was about 60,000 mt. During the Chinese New Year holiday in January and February, the demand in the power battery market was still strong. Except for some small enterprises who took the holiday for 1-2 weeks, those leading precursor enterprises maintained high operating rates to fulfil downstream orders. The new precursor capacity of top-tier enterprises was put into operation at an accelerated pace in March, and the monthly output reached a historical high of 64,000 mt, Coupled with rising overseas demand, the export volume also rose MoM.
However, affected by the pandemic in the Yangtze River Delta region in the second quarter, the supply chain of car companies was deeply disrupted. A leading car company stopped the production for 2 months, generating less demand for precursors. Hence the monthly production in April and May contracted significantly. In June, the pandemic situation improved, and the auto market also recovered rapidly, promoting the production of precursors. In addition, as some top-tier precursor enterprises rushed to produce around mid-year, the monthly output in June surpassed the high recorded in March to 67,000 mt. On the other hand, after the Chinese New Year, the lithium prices rose sharply, suppressing the demand in the consumer goods and e-bike markets that are sensitive to prices. And the pandemic in the second quarter further weighed on the consumption side in the first half of 2022. Nonetheless, except for the force majeure factors (pandemic) from April to May, the domestic and foreign power battery market generated sound market, and the output of NMC and NCA precursors has basically maintained a monthly growth.
In the first half of the year, there were 5 enterprises that produced more than 20,000 mt of precursors. The concentration rate of CR10 was 84%, and CR5 71%, and the concentration is basically the same as last year. The precursor output is expected to total 446,000 mt in the second half of 2022, up 34% YoY.
From the perspective of output structure, the proportion of high-nickel material precursor in the first half of 2022 rose owing to the increase in the proportion of 8-series NMC materials and NCA products in overseas markets. The overseas power battery market has accelerated the transition to high-nickel materials, and the power tool field is more inclined to use NCA products. It is expected that the overseas market will continue to serve as a strong growth engine in the second half of the year, and the proportion of high-nickel material precursor may continue to increase.
In addition, the proportion of the 5-series decreased significantly, mainly due to the weak demand in the consumer goods market in the first half of the year. After the cost efficiency of the 5-series dropped significantly, the buyers gradually switched to 6-series. In addition, the power battery market is gradually switching from 5-series products to 6-series with higher nickel partial ratio, which have higher energy density and lower cost per watt-hour. 5-series products are expected to be replaced in a more extensive way in the second half of the year.
The market share of TOP5 NMC and NCA precursor enterprises in the first half of 202 is 71%, naming CNGR, GEM, Brunp Recycling, Huayou Cobalt and Jintong Energy Storage, flat from a year ago. In addition, there commissioning of new precursor capacities has been busy as well in 2022. For example, CNGR Guangxi will put 180,000 mt into production this year, Brunp 100,000 mt in Fujian, and GEM 80,000 mt also in Fujian before the end of the year. A number of other precursor enterprises including Jintong Energy Storage, Ronbay, Guangyuan Lithium, Jiana Energy, Cologne New Energy all plan to increase their production capacity this year.
However, as the ternary market is squeezed by LFP products and is affected by the pandemic this year, the precursor output growth is lower than expected, with a year-on-year growth rate estimated at 35% throughout 2022. On the other hand, the capacity of precursor enterprises is released quickly, especially the top-tier ones, hence the problem of overcapacity has already surfaced. At present, the top-tier precursor enterprises are deeply bound to their customers, and have also secured upstream nickel and cobalt sources in a large amount, hence their high capacity utilisation rate will effectively reduce costs. It is expected that the market concentration rate of the top-tier enterprises will further increase in the future. Small and medium-sized precursor enterprises, on the contrary, may become tollers or gradually withdraw from the precursor market in the long run due to the lack of large customer base, no upstream nickel and cobalt sources, and lack of funds to expand production.