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Rystad Energy: Electric car makers brace for cost headache as battery-grade lithium price set to rise

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Global Mining Review,

A recent analysis from Rystad Energy has shown that electric vehicle (EV) producers and suppliers could be facing a major cost headache starting this year as prices for battery-grade lithium are poised to skyrocket.

Prices for the metal are already trading at a record high of US$35/kg in Asia, and are likely to keep climbing to US$50/kg in 2H22 and trade at around US$52.5/kg in January 2023.

Interest in lithium iron phosphate (LFP) batteries has taken off among manufacturers since early 2021. Rystad Energy therefore expects the supply of lithium salts to remain tight through 1H22 at least, due to lagging production in China and South America. Producers appear reluctant to sell significant volumes on the spot market, as supply constraints and the ongoing logistical issues caused by the pandemic create bottlenecks in the trading market for lithium salts.

Chinese producers are hesitant to sell lithium salts on the spot market due to constraints caused by a slowdown in lithium carbonate production in Qinghai province in recent months. Similarly, suppliers in South America’s lithium triangle are reluctant to allocate volumes outside long-term contracts despite their planned ramp-up in 2022, taking a cautious stance because of the ongoing logistical challenges.

This supply tightness for lithium salts, combined with the optimistic demand outlook for LFP batteries that typically feed on lithium carbonate, is expected to keep lithium carbonate prices high and support a notable premium over the price for lithium hydroxide in early 2022. However, Rystad Energy estimates this premium will gradually narrow after seasonal supply bottlenecks ease in China and a ramp-up plan in South America materialises.

“A fresh new driver for China’s lithium market are lithium contract prices on the Changzhou Zhonglianjin exchange platform. Launched some six months ago, the futures contracts have driven sentiment in the market to some extent, especially over the past two months. This has contributed significantly to the current momentum in lithium prices in China and made trader-suppliers who have attempted to destock in January hold back from selling for now,” says Susan Zou, senior analyst on Rystad Energy’s battery materials team.

Changzhou’s lithium contract price for February 2022 hit an intraday high of CNY 418 500/t on 10 January, up 14.34% from CNY 366 000/t at the close on 31 December 2021. The contract price then dropped to CNY 345 500/t at close on 12 January. However, it is still too early to say whether Changzhou’s lithium contract price will repeat the success of the cobalt contract on Wuxi, which has long dictated cobalt prices in China’s physical market, Zou said.

Rystad Energy’s monthly price index suggests that prices for battery-grade lithium carbonate ex-works China rose to CNY 300 000/t in early January 2022, up nearly 43% from CNY 210 000/t a month earlier. The price for battery-grade lithium hydroxide ex-works China rose to CNY 290 000/t in early January from CNY 192 000/t in early December.

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