China may struggle to cool lithium rally this time around By Bloomberg

(Bloomberg) — Scorching gains for lithium, a vital raw material to power electric vehicles, threaten to drive up costs further for Chinese battery makers, and the government finds itself powerless to do anything about it. topic.

Even after a meeting last week where Chinese authorities pleaded with major producers to stabilize prices, lithium carbonate hit a new high, hitting 500,500 yuan ($70,716) a ton. In yuan terms, this exceeds the level that prevailed when Elon Musk of Tesla (NASDAQ:) Inc. called prices “crazy” earlier this year.

“In the short term, I don’t think the meeting will help China cool the rally,” BloombergNEF analyst Peng Xu said. Prices for marine spodumene – a partially processed form of lithium – are rising amid a supply-demand mismatch, which is squeezing margins for Chinese lithium refiners, Xu said, adding there were still room for additional gains from current price levels.

It was easier for China in March, at the time of the previous peak. Then officials brought in supply chain representatives and told them they wanted “rational” pricing. That at least stalled the rally. But it came at a time when virus lockdowns were dampening demand, and downstream users were also struggling to meet the high costs of other battery materials like nickel and cobalt. Now things are different.

Chinese manufacturing is rebounding, with electric vehicle production more than doubling from a year ago in August. The China Passenger Car Association expects electric vehicle sales to hit a record 6 million this year, double the number in 2021. Lithium supply continues to lag demand, and the availability of power in major generating centers is a concern this winter. In a sign of tension in the market, an auction of Australian spodumene has just attracted the highest bid ever.

The fall in the Chinese currency also plays a role in the surge in domestic prices. The yuan has fallen more than 10% this year and is heading for the worst annual performance since 1994. The Federal Reserve’s 75 basis point hike on Wednesday only made matters worse. China generally buys raw materials in dollars, so the weakening of the yuan increases costs for the country’s importers.

At China’s meeting with the lithium industry last week, officials told big companies to ensure prices don’t deviate wildly from production costs and urged consumers to strike deals. long-term. The nation also said it would help boost exploration, stabilize imports and promote the recycling of raw materials.

©2022 Bloomberg LP

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