FOCUS: Power woes raise uncertainties in China's battery materials supply chain

The battery raw materials supply chain in China took a breather after a week-long holiday to mark the country’s national day in early October, with the lifting – partially or otherwise – of extensive power cuts announced in late September in several production hubs.

The supply chain is still vulnerable to power restrictions, however, which are likely to persist in winter.

Similar to those for other commodities such as aluminium and zinc, the battery raw materials supply chain in China - from the production of raw materials upstream to cathode and anode materials downstream - has been affected by power restrictions since September.

A majority of producers affected by the power cuts have resumed their operations in varying degrees after the October 1-7 public holiday.

But fresh power restrictions in will likely roll out in certain cities soon, sources said, though they do not expect such curbs to be too severe or prolonged for the battery raw materials sector, since it is a crucial segment that feeds into the government-advocated electrification of transportation.

Nevertheless, power restrictions still create uncertainties in both supply and demand, make market participants seeking direction more cautious.

Anode materials production

China’s power crunch has affected the production of anode materials more severely than other segments in the battery raw materials supply chain, market participants told Fastmarkets.

Power restrictions in Inner Mongolia autonomous region threaten to disrupt about 50% of the country’s upstream anode materials production, leading to surging prices and new projects shifting away from the region.

Inner Mongolia is a major production hub for synthetic graphite due to its favorable electricity prices. Graphitization capacity in Inner Mongolia accounts for almost 45-50% of the national total; the rest is located in the country’s southwestern region electricity rates are also lower.

“Energy consumption controls [in Inner Mongolia] began at the start of the year, tightening graphitization production for synthetic graphite anode materials. While we saw some operational improvements in the middle of the year, things have been getting worse in recent days with more critical power shortages,” a China-based anode materials producer source said.

China produced around 55,000 tonnes of synthetic graphite in October, down by 5% from 58,000 tonnes a month earlier, according to sources.

The graphitization process is a major part of synthetic graphite production. It consumes large amounts of energy - around 12,000-16,000 kilowatt hour (kWh) - to graphitize one tonne of synthetic graphite, according to sources. This makes up 20-30% of its production cost.

Meanwhile, market participants estimates that graphitization accounts for about 50-60% of total cost in the production of synthetic anode materials.

“Tightening production capacity coincides with sound demand from the downstream battery manufacturing sector, both at home and abroad,” a second anode materials producer source in China said.

“As a result, increasing production costs need to be shared with downstream users. The synthetic anode materials price has grown by 15% against the first quarter,” the source said.

While major producers in the country have sought to integrate graphitization capacity with their operations, the market is still reporting tight supply. Approximately 50% of graphitization is carried out separately from the rest of the synthetic manufacturing process at independent facilities, mostly in Inner Mongolia, sources said

In light of the power woes in Inner Mongolia, producers might look elsewhere to set up the integrated facilities, sources said.

“With [a] power crunch in the short term coupled with China’s long-term goal of decarbonization, the expansion of the high energy-consuming graphitization lines will become increasingly difficult, especially in northern China. As such, we might see a growing trend of new operations in provinces such as Sichuan and Yunnan,” a third anode materials producer source told Fastmarkets.

Cathode materials, feedstock salts production
The recent power restrictions have disrupted production of both cathode materials and feedstock salts, including precursor raw materials and lithium salts that are used to produce cathode materials.

Typical precursor raw materials include nickel sulfate, cobalt sulfate and manganese sulfate, which - together with lithium salts such as lithium carbonate or lithium hydroxide - are used to produce nickel-cobalt-manganese (NCM) precursor materials.

The production of cathode materials usually consumes more power than that of their feedstock, according to market participants. The production of NCM 622 (Ni:Co:Mn: 6:2:2) and NCM 811 cathode materials in particular consumes the most power, they said.

This has to do with the fact that the production nickel-rich NCM cathode materials involves two rounds of sintering, they added.

Some 10,000-12,000 kWh of electricity is needed to produce one tonne of nickel-rich NCM cathode materials, according to several cathode materials producers.

“Producers of cathode materials will be more cautious moving forward, and prepare for temporary power restrictions from local authorities that are made with short notice,” a cathode materials producer source said. The source estimates that any future power restriction would not exceed 10-20% of their typical consumption.

Market participants are finding it hard to gauge whether the impact of power restrictions on cathode materials will exceed that on their feedstock, which results in uncertainties over demand along the value chain.

Cathode materials, feedstock salts demand
While market participants are unable to estimate the extent of the disruptions in various segments of the supply chain as a result of unpredictable power restrictions, they have noticed consumers at every level becoming more cautious about building up feedstock inventories.

Demand for cathode materials in the second half of the year failed to outperform that in the first half, according to cathode materials producers.

Meanwhile, some market participants have pointed out that a potential shortage of anode materials is likely to dampen battery manufacturers’ appetite for cathode materials.

“If battery manufacturers can’t secure enough anode materials, then they can’t produce batteries. So there will be less need for them to buy cathode materials,” a precursor materials producer source said.

But sources at one leading battery manufacturer and several major cathode materials producers told Fastmarkets that such concerns have yet to materialize in reality. The same battery manufacturer source downplayed the supply bottleneck affecting anode materials for its operations despite ongoing disruptions in the production of such materials due to power cuts.

“It is less likely for consumers to have difficulty in sourcing anode materials,” the battery manufacturer source said. “The crucial issue is whether they can accept the increasingly higher prices [for anode materials].”

“As long as they keep purchasing anode materials, demand for cathode materials won’t be impacted. However, it is a fact that all battery raw materials prices have risen too quickly,” the manufacturer source added.

Additionally, demand for NCM cathode materials has grown at a slower pace in recent months as a result of a worldwide shortage of semi-conductors and a preference for lithium iron phosphate batteries among producers of non-luxury electric vehicles in China, according to sources.

Elsewhere in the upstream market, restocking appetite for feedstock salts has waned amid caution among cathode materials producers, resulting in a slower rally of lithium prices in the country after the holiday earlier this month.

Fastmarkets’ assessment of the lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range, ex-works domestic China was 190,000-200,000 yuan ($29,697-31,260) per tonne on Thursday October 21, unchanged from a week earlier. Prior to the holiday, the price had been mostly experiencing weekly double-digit increases in percentage terms in September.

Fastmarkets’ assessment of the lithium hydroxide monohydrate, 56.5% LiOH.H2O min, battery grade, spot price range, exw domestic China was 177,000-205,000 yuan per tonne on Thursday, narrowing upward by 2,000 yuan per tonne from 175,000-205,000 yuan per tonne a week earlier. Prior to the holiday, prices had been rising over several weeks in September at rates of around 10%.

The range widened amid varied purchasing strategies of leading and marginal consumers, and the rate of increases has slowed after the National Day break in comparison with pricing sessions in September.

Rising auxiliary materials prices
Disruptions in the production of certain chemical products that are essential to the production of cathode materials and the upstream feedstock salts have been more significant, according to market participants.

“Production costs for battery raw materials producers have risen sharply with prices for electricity, sulfuric acid and liquid caustic soda surging,” a second cathode materials producer source noted.

Spot prices for sulfuric acid and liquid caustic soda have risen by about 50% compared with levels in the first half of year, according to market participants.

In addition, China will allow its floating electricity prices to fluctuate by up to 20% of the base price from October 15. The floating price limit of 20% will not apply to industries that consume high amounts of electricity, or if their power demand is met via term contracts negotiated directly between them and the grid corporation, the National Development & Reform Commission (NDRC) said.

These elevated costs have either already contributed to rising prices for salts such as cobalt sulfate and lithium carbonate, or will do so in the future.

Fastmarkets’ price assessment of the cobalt sulfate 20.5% Co basis, exw China was 89,000-93,000 yuan per tonne on Wednesday October 20, up by 9,000-11,000 yuan per tonne (12.35%) from a month earlier.

The processing fee for lithium carbonate has also almost doubled due to soaring prices for liquid caustic soda, a trader told Fastmarkets.

The upward momentum for lithium carbonate prices will be sustained, the trader said.

Susan Zou

susan.zou@metalbulletinasia.com

Sybil Pan

sybil.pan@fastmarkets.com

Published

Susan Zou

Sybil Pan

October 22, 2021

05:14 GMT

Shanghai