Tomorrow Investor

Lithium Drops in China for Second Week in a Row


The world’s hottest commodity is about to drop for the second consecutive week in China as shares for lithium suppliers have begun to fall due to near-term demand from the domestic electric vehicle market.

Industry watchers say that electric vehicle sales are expected to slow over the next several months and that the price of lithium is being hit by wariness in the Chinese EV scene.

Last month, EV registrations in China dropped by over a fifth of the number posted in September and the production of EVs has also hit a snag due to the growing number of cities locked down as authorities scramble to prevent COVID surges as winter looms closer.

Over the past year, the price of processed lithium in China has tripled based on the most recent information from Asian Metal Inc. Lithium prices have also surged by more than 1,200% since 2020 as refining companies try to match dwindling supplies against ravenous demand.

According to Rystad Energy analyst Susan Zou, lithium prices in China are expected to meet a certain level of correction over the next several months. In which case, battery makers have to destock, while EV manufacturers are set to meet their annual targets. In the meantime, EV makers are set to deal with the rising cost of raw materials as well as decreased consumption in the first quarter of the new year.

The End of Government Subsidies?

Another cause for concern among EV makers is the news that the government subsidies which enabled the industry’s rapid growth over the past several years are set to come to an end as the year draws to a close.

Despite rumors that the government could extend these subsidies for a few more years, companies like industry leader BYD Co. are already raising the prices of their EVs, citing both a change in government policies on financial subsidies and erratic input costs.

Just last week, however, the Chinese government called upon lithium battery makers to increase their output only when necessary and appropriate, so as to prevent rampant competition. Government officials likewise announced that punishments would be meted out on companies that speculate on lithium prices or hoard supplies of the metal.

But whether this downturn in the price of lithium in China will stay sustainable depends on the willingness of consumers to pay a much higher price for an EV. Keith Tan, S&P Global Commodity Insights’ associate regional pricing director in Asia, says that a number of people in the industry feel that the odds are against future gains, given how government subsidies may be off the table come next year.

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