Unlock the Editor’s Digest for Free: Price Drop in Battery Materials Signals Changing EV Market
Roula Khalaf, Editor of the FT, shares her top stories in this exclusive weekly newsletter. In recent news, prices for key battery materials such as lithium, cobalt, and nickel have experienced a significant decline. This can be attributed to a cooling off of electric vehicle (EV) sales in China and an influx of supply flooding the market.
Data from Benchmark Mineral Intelligence, Refinitiv, and Argus shows that lithium prices have fallen by nearly 70% since the beginning of the year, while nickel prices have dropped by 40%. The cobalt market is currently oversupplied, causing prices to hover just above record lows.
The decline in prices can be largely attributed to a slowdown in the demand for fully electric cars in China. While sales doubled in the first nine months of 2022 compared to the same period in the previous year, the growth rate has slowed to 25% this year. Martin Jackson, head of battery raw materials at CRU Group, explains, “It’s the EV market decelerating. On top of that, consumer electronic sales in China declined double digits last year, and we’re forecasting another double-digit contraction this year.”
However, some commodity strategists argue that the price drops are a return to normalcy after the hype that drove up battery metal markets in recent years. It should be noted that the fall in raw material prices comes as a relief to car companies and battery manufacturers who faced an increase in cell prices last year, a rarity over the past decade.
The decline in lithium prices is particularly noteworthy. Starting at around $25,000 per tonne, lithium prices experienced an unprecedented rally in mid-2021, peaking above $80,000 at the end of 2022. Currently, they have fallen back to around $23,000 per tonne. Benjamin Hoff, global head of commodities research at Société Générale, states, “This is really irrational exuberance of 2021-22 reversing rather than some kind of massive doom and gloom setting in.”
These price swings highlight the volatility of battery material markets, as miners attempt to quickly increase production to meet the expected surge in EV demand over the next decade. Sarah Maryssael, chief strategy officer at Livent, emphasizes that prices for raw materials used in electric vehicle batteries will continue to be volatile. She explains that this volatility is a natural part of the boom and bust cycle, posing a challenge for automakers and miners trying to scale up supply quickly without destabilizing prices or depleting scarce resources.
The recent drop in prices is further attributed to “destocking” in the battery supply chain, where stockpiled materials are used to manufacture batteries instead of purchasing new supply. Additionally, high financing costs due to interest rate hikes have made it more expensive to hold onto raw material inventory.
While the decline in prices is expected to reduce the cost of electric vehicles, the effects may take some time to materialize, depending on the contract terms between miners and customers. Nevertheless, the drop in prices has opened up opportunities for mergers and acquisitions in the mining industry. Albemarle, the world’s largest lithium producer, recently withdrew its $4.3 billion bid for Liontown Resources, and other mining groups are looking to execute deals as price tags become more favorable.
Cobalt prices have been hit particularly hard due to its production as a byproduct in copper and nickel mines, making it difficult to cut back supplies and balance the market during price drops. China’s CMOC faced export bans on copper and cobalt from its Tenke-Fungurume mine earlier this year, resulting in a significant stockpile of cobalt entering the market. Oversupply in the cobalt market is expected to persist for the next few years, with the projected increase in supply almost double the market size.
Analysts and executives at the London Metal Exchange’s annual conference predict an oversupply in the nickel and cobalt markets for the next couple of years, coinciding with decreasing demand due to technological advancements. However, they also anticipate a potential price surge in the future as the EV market rebounds, leading to increased demand for materials.
In conclusion, the drop in battery material prices indicates a shifting landscape in the EV market. While the decline in prices may lower the cost of electric vehicles, it may take time for these savings to be realized. Furthermore, the volatility in battery material markets poses both challenges and opportunities for automakers, miners, and investors as they navigate price fluctuations and strive for stability in the supply chain.
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`Roula Khalaf, Editor of the FT, shares her top stories in this exclusive weekly newsletter. In recent news, prices for key battery materials such as lithium, cobalt, and nickel have experienced a significant decline. This can be attributed to a cooling off of electric vehicle (EV) sales in China and an influx of supply flooding the market.
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