Nickel is not the battery-destined metal that concerns China the most. In March, the government of the Asian giant summoned several market players to find ways to curb lithium’s whopping increase of 472% since last June.
How is China preparing for the next three years and what opportunities lie ahead?
Worries
Nickel has hogged a large part of the nervousness among battery metals in recent weeks and understandably so. Sharp price swings including a record 250% surge in two trading sessions amid a liquidity crunch, and concerns over Russia's role as a supplier, have fueled the worries of automakers.
However, it was lithium that triggered anxiety in China, the world's largest electric vehicle market. Vital for almost all rechargeable batteries and essential for the deployment of cars and ammunition, lithium carbonate has shot up 490% in the last year, according to a price index by Benchmark Mineral Intelligence.
The March encounter was attended by industry groups, raw material suppliers, and battery producers, and China’s Ministry of Industry and Information Technology called for a rational return to the more usual prices —the talks focused on supply bottlenecks, pricing mechanisms, and how to healthily develop the nation’s energy vehicle and battery industries.
Similar approaches have been taken to handle escalating commodity prices —coal and steel, for instance. However, China’s move is pretty unique in the electric vehicle industry and underlines the nation’s anxiety about the effect of skyrocketing lithium costs.
Car manufacturers are now struggling with commodity hikes with several increasing consumer prices in response. The consequence is that higher prices might slow down the pace of consumer adoption at a crucial stage —Xpeng Inc ARD XPEV increased vehicles prices between 10,100 and 20,000 yuan.
The company’s CEO Brian Gu, told Bloomberg TV: “We’re operating in a very challenging environment as you can see in China. The industry is facing very strong headwinds in terms of cost escalation.”
Similarly, Nio Inc ADR NIO founder William Li, urged suppliers to consider the impact of rising costs on the electric vehicle industry in an earnings call last month, as development challenges in the sector stem from decisions to slow or stop expansions and new projects.
A Huge TaskThe current challenges are the result of halting new projects and slowing down production amid two years of lower prices during the pandemic. That, in combination with Covid-related supply bottlenecks, has resulted in any additional supply not being able to cope with growing needs.
According to BloombergNEF, demand for lithium will quintuple by the end of the decade according, and the industry will need investments of about $14 billion to fund lithium resources and refining capacity in the next three years, and a further $5 billion by 2030.
Faced with this necessity, initiatives show how governments, producers, and consumers have come to grips with the gargantuan task ahead. Just recently, Tesla Inc TSLA signed two supply agreements with promoters in Australia, while Ganfeng Lithium Co Ltd (SHE:002460) said it would destine profit surplus to back a massive expansion plan.
The initiative is aimed at offering a subsequent 600,000-ton capacity of lithium carbonate, well above the current production of about 89,000 tons.
Chinese authorities are pushing hard to fast-track the formation of a solid national lithium industry —that already dominates world production— which underlines the country’s growth endeavor in provinces such as Qinghai, Sichuan, and Jiangxi.
Meanwhile, U.S. President Joe Biden added lithium and other battery metals to the list of items covered by the defense protection law, which means businesses can access funding to boost production or study possible new developments.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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