Why battery raw material prices slumped under pressure in the first half of 2023

Prices of critical battery materials such as lithium, cobalt, nickel and graphite, were under pressure in the first six months of this year as a slowdown in China hit downstream demand and new supplies continued to enter the market.

Critical battery material prices declined between 20% and 40% in the first half of 2023 at a time when cathode and anode makers continued to destock existing inventories or remained cautious with new orders and producers continued to pile up supplies amid an uncertain demand scenario.

“Following a year of bumper cell production in China in 2022, the first half of 2023 saw a notable softening for battery raw materials in China, with these markets slowing down for the first time in nearly two years as downstream players took a breath in regards to feedstock purchasing whilst working through stockpiled cell inventories,” said Daisy Jennings-Gray, analyst at Benchmark.

Demand for electric vehicles in China took a hit at the start of the year following the discontinuation of a decade old New Energy Vehicle subsidy and the incoming Spring Festival. Electric vehicle sales remained weak but picked up pace in February after a Tesla-induced price war that spurred local rivals to offer steep discounts as well. In late June China extended the sales tax break for electric vehicles until 2027.

The battery material price declines also came at a time as the US and Europe moved ahead with ambitious plans to build their own critical minerals supply chains to responsibly source battery materials and challenge China’s mid and downstream dominance by the end of the decade.

According to Benchmark data, this year China alone is forecast to refine 62.5% of the world’s lithium supplies in 2023, 76% of cobalt, mine 65% of the world’s natural graphite and produce 72.5% of synthetic graphite.

Lithium starts 2023 on the back foot

Battery grade lithium carbonate and lithium hydroxide prices in China had already fallen 64% and 56% respectively in the first four months of the year, slowing down the two-year rally for the critical battery material.

Prices however recovered some ground in early May as cathode and cell makers accelerated orders despite only a moderate recovery in downstream demand. Still lithium carbonate and lithium hydroxide prices were down 40% and 42.2% overall in the first six months of 2023 data from Benchmark’s Lithium Price Assessment shows.

Cell makers started the year with high inventories spurring cathode makers to destock and make limited chemical purchases leading to an inventory build up with lithium producers and a fall in prices. Lithium traders also held back from engaging in market activity, as they waited to see if prices move lower.

Cobalt bear run continues

Cobalt sulphate and cobalt hydroxide prices fell 21.2% and 30.3% in the first six months of 2023. Cobalt metal prices have declined 51% since peaking in April last year.

In February the industry had speculated that cobalt metal prices had neared the floor but limited demand from the electric vehicle and the consumer electronics sector stoked negative sentiments and drove prices further down.

One of the most significant cobalt developments in the first six months of the year was when China Molybdenum’s Tenke Fungurume copper and cobalt mine in the DRC began exports of material in May after a 10-month ban. The move pushed prices further down. CMOC had piled up an estimated 16,000 tonnes of cobalt hydroxide during the ban which could now enter the market for sale.

Chinese graphite market meets muted downstream demand

Domestic Chinese -100 mesh 94-95% C flake graphite prices fell 20.8% and those of pre-calcined pet needle coke, the key feedstock for synthetic graphite fell 29% in the first half of the year as new capacity continued to come online despite lacklustre demand from the electric vehicle sector.

On the flake graphite front, supply from Heilongjiang Province in China has remained relatively robust from April onwards. Graphite operations are seasonally suspended from Heilongjiang Province from September to April or May. Prices usually fall in summer when more supply comes in and this year they have fallen even more because of weak demand from the electric vehicle industry.

Heilongjiang is expected to produce 60% of global -100 mesh flake graphite, the grade typically used for battery applications, this year, according to Benchmark’s Natural Graphite Forecast.

The fall in graphite prices puts increasing pressure on graphite miners, and comes as anode manufacturers report plentiful raw material inventories, especially in China.

For synthetic graphite, supply of pet coke and pet needle coke remained robust with new capacity continuing to come online and despite less efficient producers halting production.

Synthetic graphite anode producers were also being more lenient with the feedstock they could use – putting downward pressure on low sulphur coke prices.

China continues to lead global coke production, and by 2030 the country is projected to account for a near 75% share of global supply of coke, according to Benchmark Synthetic Graphite Forecast.

Nickel rally loses steam in first half

Nickel sulphate prices retreated by 20% in the first half of 2023 due to muted demand from the electric vehicle sector and the weak NCM demand recovery. Prices did rise in February when producers rushed to buy additional material given the sizable arbitrage between the Chinese and the international prices. Prices also rose slightly in June amid firming downstream demand.

Nickel sulphate prices have been on a generally bearish trajectory since October 2022. In April Chinese nickel sulphate prices reached their lowest levels since June 2021 only to recover moderately.

For the most of the first half in 2023, nickel demand remained constrained as existing inventories were prioritised over sourcing new feedstock.

2022 marked a record year for capacity additions and expansions with refined nickel production increasing by 18% year-on-year to 3.2 million tonnes. This is set to grow by a further 6% in 2023, to 3.4 million tonnes, largely driven by a 50% increase in Indonesia’s nickel output, according to Benchmark Nickel Forecast.

Indonesia is emerging as a key nickel producer and Benchmark forecasts that Indonesian nickel production for the battery industry will grow by over 600% this decade, thanks to significant Chinese investment in processing plants.

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