SMM Analysis of Supply Shock on Lithium Salt and Cathode Material Producers amid Escalated Power Rationing in Sichuan

SHANGHAI, Aug 16 (SMM) - On August 15, the Sichuan Provincial Department of Economy and Information Technology and the State Grid Sichuan Electric Power Company jointly issued the Emergency Notice on Expanding the Scope of Cutting Off Electricity Supply to Industrial Enterprises in Favour of Residents. The notice pointed out that due to recent large-scale and long period of extreme high temperature weather that has not been seen in 60 years, the ongoing drought has led to a sharp decline in hydropower generation capacity, and the current power shortage situation has further intensified. Starting from August 15, the staggered power use shall be cancelled, and the implementation scope of cutting off electricity to industrial enterprises in favour of residents will be expanded in 19 cities (prefectures) in the province (except Panzhihua and Liangshan). All industrial power users who are included in the Sichuan Power Grid Orderly Power Use Programme (including whitelisted key security enterprises) shall stop production (except for security loads). This will take effect from 00:00 on August 15, 2022 to 24:00 on August 20, 2022. All localities should immediately notify enterprises to make production adjustments and implement this policy immediately.

This round of power rationing covers 19 cities (prefectures), including Chengdu, Zigong, Luzhou, Deyang, Mianyang, Guangyuan, Suining, Neijiang, Leshan, Nanchong , Meishan City, Yibin, Guang'an, Dazhou, Ya'an, Bazhong, Ziyang, Aba Tibetan and Qiang Autonomous Prefecture, and Ganzi Tibetan Autonomous Prefecture. The announcement immediately aroused strong market attention. SMM has also reached out to local producers to explore the overall impact of this round of power rationing on the production and sales in China's new energy lithium battery industry.

SMM survey found that this round of power rationing in Sichuan has affected many lithium salt, ternary material, lithium iron phosphate, and graphitization enterprises.  While some companies are still trying to negotiate with the local government for alternative measures such as off-peak production so as to avoid an outright shutdown, most producers have officially entered a 5-day closure from 00:00 on August 15.  Considering that some production lines, such as NMC materials and LFP, need a certain amount of time for the kiln to heat up after being cooled, some producers said that this round of power rationing will actually disrupt 7-8 days of their production.

According to SMM statistics, this round of power rationing is expected to lead to a reduction of 1,120 mt of lithium carbonate, 1,690 mt of lithium hydroxide, 500 mt of MNC materials, 5,200 mt of lithium iron phosphate, and about 300 mt of graphitization in August. On the whole, the ongoing power rationing mainly involves large NMC material and lithium iron phosphate factories. Although some manufacturers are still negotiating with the government, which means the actual impact will need reassessment, the cuts in battery material production is estimated to be bigger than the reduction in lithium salt supply.  And considering the current situation of power supply this year, the power rationing may be extended, thus the actual impact could potentially expand. The power rationing came at a time when some battery material makers are now beginning to stock up raw materials for use in the second half of the year and when lithium carbonate supply is starting to tighten. SMM expects that the lithium carbonate supply tightness will be alleviated and stocking by NMC material and LFP producers will slow down.  

SMM will continue to keep a close eye on how the power rationing will evolve and its impact.