Commodities 2022: China's lithium markets to face supply squeeze

China's lithium market is set to face tightening supplies throughout 2022 as the demand-supply mismatch widens, a development that is likely to keep domestic prices at elevated levels, according to the S&P Global Platts China Battery Metals Outlook for 2022.

As battery production capacity continues to expand, fueled by expectations of strong electric vehicle sales against the backdrop of intensified decarbonization efforts, it is almost a certainty that China's demand for lithium will increase further this year.

EV demand drives prices

In the Platts survey, a total 80% of the respondents expected that China's average battery-grade lithium carbonate prices in 2022 would be higher than Yuan 250,000/mt ($39,354/mt), about 316% higher from what it was at the start of 2021.

Meanwhile, 88% of the respondents expected lithium hydroxide prices to remain higher than Yuan 195,000/mt in 2022, the survey results showed.

Platts assessed battery-grade lithium hydroxide at Yuan 218,000/mt Dec. 31, 2021, on a DDP China basis, up 319.2% from a year earlier.

Lithium chemicals prices will remain strong in 2022 in a view that the increase in demand will far exceed new supplies, said an international trader.

The supply crunch for lithium carbonate and hydroxide is expected to persist at least through the first half of 2022, respondents said. However, tightening of supplies may ease slightly in the second half with new capacities coming online, they added.

Prices might come off in H2 as supply eases slightly and on downstream consumers' resistance to the high raw materials prices, although the correction may be limited due to bullish demand, said another international trader.

Some market sources in China also said it is a critical time for battery makers and EV producers to solidify their domestic market share. As a result, they will likely accept higher prices in the next two-three years instead of risking a supply crunch and a disruption to production, they said.

Despite this, lithium prices above the Yuan 250,000/mt level also threatens to cap downstream demand, said a China-based consumer.

In all, 83% of the market participants expected the loading volume of lithium iron phosphate, or LFP, batteries to continue trending higher than that of nickel manganese cobalt batteries in 2022, pegging their respective market shares at 60% and 40%.

The loading volume of LFP and NCM batteries totaled 79.8 GWh and 74.3 GWh in 2021, up 227.4% and 91.3%, respectively, from a year earlier, which accounted for 51.7% and 48.1% of China's total EV loading volume.

Backed by robust demand from downstream users, 92% of the respondents said China's lithium salt production capacity would increase in 2022 over the previous year levels.

Spodumene tight supply supports prices

Throughout 2021, booming lithium salt demand had caused prices of upstream spodumene -- the feedstock for lithium salt -- to surge more than 522% over the year on tight supplies.

Platts assessed spodumene concentrate (6% lithium oxide) at $2,350/mt FOB Australia Dec. 31, 2021, as rallying salt prices boosted spodumene offers to historic highs.

Despite this, only 67% of participants expected that the rising demand for lithium salt would also boost spodumene concentrate prices in 2022.

Some market sources said excessively high spodumene prices would not be beneficial to the long-term development of the lithium-ion battery industry, although they added that tight supply would still keep prices elevated.

Seaborne market follows domestic lead

In 2022, 92 of the respondents expected the average price for battery-grade lithium carbonate to remain above $30,000/mt on a CIF North Asia basis, with 88% of the respondents expecting similar price level for lithium hydroxide, according to the survey.

Platts assessed lithium carbonate at $33,800/mt Dec. 31, 2021, up 432.3% from a year earlier.

Lithium hydroxide prices were assessed at $31,700/mt on the same day, up 252.2% from a year earlier. The prices reflect the spot value of battery grade material on a CIF North Asia basis, referring to deliveries to the main ports of China, Japan and South Korea. Lithium carbonate, however, is normalized to deliveries at the Shanghai port.

Seaborne lithium carbonate prices began to lag behind domestic prices in August 2021 and the spread has since widened to more than Yuan 36,000/mt as of Dec. 31, 2021.

Market sources expected seaborne prices to catch up with domestic prices in 2022 due to little export interests as more China-based sellers were focused on the domestic market due to higher offers and therefore, higher margins, further limiting export activities.

China's EV boom continues

Looking ahead, the China Association of Automobile Manufacturers predicted the country's EV sales to reach 5 million units in 2022, up 40% from a year earlier.

Some market observers expected China's NEV sales to breach 6 million units in 2022, as consumers may decide to purchase NEVs in the anticipation of rising prices caused by the government's planned removal of subsidy after Dec. 31, 2022.

In the light of the booming EV industry, bullish demand for battery raw materials is expected to continue in 2022.

The largest exporter of lithium hydroxide, China's exports will continue to increase in the years ahead, as more overseas battery producers sign long-term contracts with key lithium refiners in the country.

Meanwhile, China's imports of lithium carbonate are also expected to rise to meet the needs of domestic LFP and ternary materials producers.

Platts spoke to 25 companies for the outlook, comprising domestic and international lithium refiners, battery precursor and cathode makers, traders and analysts.