In September 2024, global ternary cathode precursor production was approximately 82,000 mt, down 4% MoM. China, the largest producer and exporter of ternary cathode precursors, accounted for about 89% of global production in September, with exports reaching 11,000 mt. Despite being a major producer, only a few Chinese companies have ongoing ternary cathode precursor projects overseas. Chinese precursor companies are cautiously observing the situation before establishing overseas plants. There are multiple reasons behind this cautious approach.
1) Unclear Overseas Downstream Demand
The unclear downstream demand in overseas markets makes it difficult for companies to accurately predict future developments, increasing the complexity of decision-making. This uncertainty is particularly evident in the declining demand for ternary cathode precursors. Specifically, South Korea, a major export destination for Chinese ternary cathode precursors, accounted for 97% of China's total exports in 2023. However, since July 2024, export volumes have significantly decreased, dropping from 21,000 mt in June to 12,000 mt in July, a 43% decline. By September, export volumes further fell to 11,000 mt, down 17% MoM and 50% YoY. The downward trend in overseas cathode production is evident, with total overseas production in September 2024 at 29,000 mt, down 11% MoM.
This trend aligns with the shift in the NEV industry in Europe and the US from ternary lithium batteries to LFP batteries. Korean battery manufacturers are also accelerating the development of LFP batteries. Recently, Hyundai announced a collaboration with Kia to develop LFP cathode materials. Additionally, LG Energy Solution has announced it will supply LFP batteries to Ampere, and Samsung is heavily investing in expanding the LFP market, preparing to build LFP battery production lines. These changes indicate that shifts in market demand and technological direction have profound impacts on exports and corporate decisions.
Moreover, overseas NEV sales have been lower-than-expected. Although market acceptance of NEVs is gradually increasing, actual sales figures remain disappointing. For example, in Europe, total sales from Q1 to Q3 were 2.19 million units, down 2.6% YoY. The electrification in Europe is almost stagnant, mainly due to the cancellation and reduction of subsidies in several countries. In the US, total NEV sales from Q1 to Q3 were about 1.16 million units, up 11% YoY. The slowdown in US electrification in 2024 is influenced by the FEOC Act, which affects subsidy eligibility for certain car models, combined with supply constraints of new affordable models, resulting in market performance falling 30% short of expected growth.
2) Unclear Overseas Policy Direction
Unclear overseas policy direction poses numerous uncertainties for companies in their strategic planning. This is particularly evident in the US presidential election, where the Democratic candidate supports policies like the Inflation Reduction Act, which benefits foreign investment, while the Republican candidate is likely to repeal the Act. Foreign companies investing in the US face the risk of reduced or canceled incentives.
3) Strict Overseas Environmental Regulations
Compared to China, overseas environmental assessment requirements are more stringent, necessitating significant upgrades and modifications to production processes for ternary cathode precursor producers to meet strict overseas environmental regulations. This may involve not only process modifications but also comprehensive and systematic treatment and management of waste generated during production. Companies must adopt more efficient pollution control measures, optimize resource utilization, and invest more in sustainable development to avoid potential legal risks and environmental liabilities.
4) High Production Costs
According to SMM estimates, the production cost of NCM523 precursor in September was about 68,500 yuan. Compared to China's labor-intensive manufacturing characteristics, overseas markets generally face higher labor costs, with relatively shorter working hours. This disparity significantly increases overseas production costs. Additionally, energy costs, such as electricity, are a notable factor in overseas manufacturing, adding economic pressure to operations. Furthermore, the scarcity of acid and alkali products required in production overseas directly leads to increased procurement costs, posing challenges to supply chain management.
SMM believes that despite China's significant position in the global ternary cathode precursor market, companies remain cautious about overseas expansion. The uncertainty in global demand, unclear policies, stringent environmental compliance requirements, and high production costs make Chinese ternary cathode precursor companies cautious about "going global." Therefore, a pessimistic outlook on global ternary cathode precursor production is maintained, with an estimated global production of about 1.16 million mt by year-end 2024.
