Lithium markets present divergent views as China announces policy to push EV sales
China’s recent policy push aimed at boosting sales of electric vehicles invoked diverged views from lithium market participants as the country continues to face lithium oversupply amid weak downstream demand, market sources said April 30.
On April 26, China, as part of its broader energy transition plans, introduced a new policy to encourage trade-ins of polluting vehicles with EVs or highly fuel-efficient cars.
Demand from EVs and energy storage is likely to rise significantly due to the incentive measures, some market sources said.
China’s lithium prices could see a fresh uptrend during the third quarter, led by these measures and downstream demand potentially surpassing current market expectations, the sources said.
However, some other market sources said they expected prices to remain under pressure in the wake of existing overcapacity. Any output cuts or suspension of high-cost mines are not enough to keep total supply in check, the sources said.
Platts, part of S&P Global Commodity Insights, assessed battery-grade lithium carbonate at Yuan 114,000/mt on a DDP China basis April 29, up Yuan 5,000/mt on the day and Yuan 6,000/mt month on month. However, prices have been down 36.7% from the same period of last year.
Attractive Measures
China’s recent policy initiative is part of an action plan devised by the State Council in March, which focused on promoting large-scale equipment renewal and trade-in of consumer goods to stimulate domestic consumption and further advance China’s green transition efforts.
The new policy will remain effective until Dec. 31.
China will provide a one-time fixed subsidy to personal consumers who scrap passenger cars that meet emission standards of China III or below, or EVs registered before April 30, 2018, according to a statement released by seven government departments, including the Ministry of Commerce.
The subsidy would amount to Yuan 10,000 ($1,381) for replacing old cars with EVs, and Yuan 7,000 for opting new cars with a displacement of 2.0 liters or less, according to the statement.
Following this policy, several provinces and cities in China have released trade-in measures to boost EV sales in April.
Meanwhile, vehicle producers continued to cut sales prices to increase market share and boost sales, which could help push domestic EV sales to some extent, industry sources said.
China’s retail sales of new energy passenger cars reached 720,000 units in March, up 37% year on year but flat month on month, according to the data released by the China Passenger Car Association.
The trade-in policy will benefit China’s EV sales significantly, which could lead to an increment of nearly 1 million units if the policy is executed properly, said CPCA secretary general Cui Dongshu.
On the energy storage side, a rapid growth in China’s installation of energy storage systems could be seen due to other relevant stimulus measures, sources said. However, some other sources said they were yet to see any significant increase so far.
Lithium supply, prices
China’s lithium salt supply is expected to continue to rise in the months ahead due to an increase in production from key producing provinces and rising imports, sources said.
Producers in Qinghai province, a key lithium salt production hub, are set to ramp up output as weather conditions improve, sources said.
Meanwhile, producers in Jiangxi are also set to resume output, and China is continuously seeing higher imports, according to sources.
The Yichun government of Jiangxi province recently issued environmental measures aimed at proper storage of lithium slag, raising concerns among market participants, sources said.
However, the move will not affect production of lithium salt converters in Jiangxi, but it could increase production costs in the long term, an eastern-China based analyst said.
China's lithium carbonate and hydroxide prices increased in the week to April 26 on the back of higher spodumene trade, sources said. However, price growth was limited due to weaker-than-expected restocking demand ahead of the upcoming Labor Day holiday on May 1, they said.
The outlook for China’s lithium markets has remained bearish in the long term amid a supply surplus, although high production costs and a potential demand recovery could lend some support to lithium prices in the short term, some sources said.
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