Soaring lithium carbonate prices stimulate boycott
The price of lithium carbonate used in ternary and lithium iron phosphate (LFP) batteries has gone up 60% since the beginning of the year, reaching the ceiling for many lithium battery manufacturers. According to Chinese media, tier 1 battery makers Contemporary Amperex Technology (CATL) and BYD are boycotting the high prices by refusing to buy materials.
Supply chain companies said price increases have been triggered by stockpiling and hype, which has not only affected small and mid-sized lithium battery makers but also low-end electric vehicle (EV) makers. Factors including war and inflation are adding to the difficulties of the global industry. Even if major lithium battery makers lead a boycott, the outcome will likely be the same.
The demand for EVs and the demand for lithium batteries are rapidly increasing. Large-scale construction projects are being carried out across the globe to expand production, particularly in China, Europe, and the US. However, upstream materials have been impacted by limited minerals, geopolitics, resource strategies, and inflation, resulting in higher-than-expected price increases.
Chinese media pointed out the price per metric ton of lithium carbonate at the beginning of 2021 was CNY50,500. By the beginning of 2022, it had risen to CNY300,000, an over fourfold year-on-year increase. Despite efforts to rapidly expand lithium battery production, the mining supply issue is difficult to solve in the short term. The price of lithium carbonate recently surpassed CNY500,000 per metric ton; a seasonal increase of over 60%. From the beginning of 2021 to now, the price of lithium carbonate has risen close to tenfold.
It is rumored that China-based battery makers have started boycotting rising lithium carbonate prices. Based on Chinese media, CATL claimed it would stop accepting orders if the price per ton of lithium carbonate exceeded CNY470,000, and prices have already surpassed this ceiling. It has been reported that several China-based cathode material factories have also stopped buying goods as a means of boycotting soaring prices, and that BYD is also participating in the boycott, but this has not been confirmed by the factories themselves.
Supply chain companies pointed out that even if tier 1 manufacturers call for a boycott, there are several reasons this issue will not be easy to resolve in the short term.
First, years ago when there was a clear oligopoly, lithium battery makers had great influence over materials factories. However, there are many more manufacturers today due to the rising demand for lithium batteries, meaning tier 1 factories no longer have an advantage in price negotiations.
Second, there is a shortage of lithium batteries, which will be difficult to balance in the short term. Even if tier 1 factories boycott high prices, new factories are still willing to buy materials. Major manufacturers must take into account the cost of losing big customers due to a lack of materials, which could weaken their resolve.
Additionally, with a large number of lithium battery players, not having materials is tantamount to not surviving. Taking into consideration long-term competition, a collective boycott would be difficult.
Lastly, many commercially relevant factors are closely related to the current state of international affairs, which is out of the control of battery companies. Nowadays, supply and demand in one region can no longer control prices.
The rise in material prices has continuously eroded the profits of lithium battery makers. Tier 1 factories may wait for tier 2 and tier 3 factories to suspend production to cut losses and then renegotiate prices with materials factories.
The Ministry of Industry and Information Technology (MIIT) in China recently pointed out it will accelerate the development of lithium and nickel resources in China, as well as improve the recycling system by enhancing the recycling ratio and use of resources. The MIIT will also crack down on unfair practices such as stockpiling and price gouging.
Even if lithium battery makers expand investment in mineral development and strengthen recycling to cope with soaring material prices, Chinese media pointed out that new lithium salt construction projects in China would still be unable to enter full mass production in 2022. The unbalanced supply and demand of lithium carbonate is likely to persist throughout the year and prices are likely to continue rising until mid-year.