Lithium in China has fallen in price by a third in three months

Lithium carbonate prices in China have fallen by 29% over the past three months, according to reports from the Fastmarkets pricing agency, which was first noticed by the Financial Times. This came amid a slowdown in Chinese demand for electric vehicles that began in late 2022, as well as the end of a multi-year program by Beijing to subsidize the demand for electric vehicles.

In February 2023, a ton of lithium in the Chinese market was worth 425,000 yuan ($61,795), while in early January 2023 it was trading at around 490,000 yuan per ton ($71,064), and in early December 2022 – 585,000 yuan ($84,840).

Lithium prices are also falling on the American market: according to the Comex Commodity Exchange, compiled by CME Group, in December the metal traded at an average of $85,000 per ton. In January 2023, lithium cost $83,000, and in February it was already $76,200 per ton. March futures show a decline to $75,000, and April futures to $74,000 per ton.

Lithium carbonate is one of the main constituents of lithium-ion battery cells, which are used in electric vehicle batteries around the world. China is the largest market for electric cars in the world. According to the China Association of Automobile Manufacturers (CAAM), in January 2023, electric vehicle sales in China were 408,000 units, down 6% year-on-year and 50% down from December 2022 (814,000 units). By comparison, 807,180 electric cars were sold in the US in all of 2022 (+3% yoy).

Last year, China accounted for about 2/3 of global sales of electric vehicles, the country then almost doubled their sales compared to 2021. In total, China sold 5.67 million electric cars and plug-in hybrids in 2022, according to data from the China Passenger Car Association .

On February 15, 2023, Tesla partially suspended production of electric vehicles at its Shanghai plant until the end of the month. This site provides about half of the company’s sales. The official pretext was the need to modernize the plant to produce an updated version of Model 3. Sales of Model 3 in China are declining: in 2022, about 125,000 units were sold, which is 17% less than in 2021.

In addition, from the beginning of 2023, the Chinese authorities stopped the practice of subsidizing the purchase of electric vehicles by the population, which had been in force since 2014. The subsidy was provided for “clean” electric vehicles (not hybrids. – Vedomosti) with a power reserve of 300-400 km and amounted to 9,100 yuan (about $ 1,320). This subsidy for cars with a range of 400 km or more was 12,600 yuan per vehicle ($1,827).

Shares of the world’s major lithium producers (SQM, Livent, Albemarle) lost 6-12% at the end of last week after a sharp decline in lithium prices. In 2022, EV batteries accounted for 57% of total lithium consumption. Wood Mackenzie estimates that this will rise to 69% in 2027.

Lithium Price Decline Not a Surprise to the Market, Says Head of Securities Research Alfa bank Boris Krasnozhenov. According to him, the lithium market may already become surplus in 2024 due to the growth in supply volumes. At the same time, the market for premium lithium, which can be used for the production of batteries, may turn to a surplus on the horizon of 2025, the expert admits.

A significant new supply of lithium from Latin America, Australia and Asia is also expected, therefore, in general, on the horizon of 4-5 years, a further decrease in prices for this metal and their normalization at the level of $30,000-35,000 per ton is possible, Krasnozhenov believes.

The price of lithium has corrected by 30% compared to the peak that was in November, and earlier, although in a different time frame, this happened with almost all metals, Finam analyst Alexei Kalachev recalls. The price could even go up to 30,000 yuan per tonne and stabilize in the range of 30,000 to 50,000 yuan or even lower, and still remain well above previous years, Kalachev notes.

Sergey Burgazliev, an independent consultant on the automotive industry, recalls that China has a program for the decarbonization of transport, but the unit cost of a traction battery in an electric car is still quite high, ranging from 45% to 60%.