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Wednesday, October 4, 2023

China backs down on strong lithium price

China complains about high lithium prices and the dangers they pose to EV companies and EV sales, and now seeks to control and then dampen prices that continue to soar.

But before investors in foreign lithium and lithium ore producers (such as Allkem, Pilbara Minerals or IGO) make a run for it, they should consider what the Chinese government is really trying to do.

Like previous comments and actions in thermal coal, iron ore, copper, nickel and oil, the Chinese government always blames foreigners and then speculators (locals in particular) who love to invest in raw materials and have done for years, especially in copper.

Campaigns are launched, some strange person or company is singled out, jailed, “disappeared” or otherwise punished, price caps are introduced, and life returns to normal.

Lithium is different because the vast majority of battery grade material is produced or processed by Chinese companies like Tianqui or Ganfeng or CATL, BYD and others.

These, together with the US group Albemarle, which has operations in China, are the world’s largest lithium processors, refiners and manufacturers (and electric vehicle manufacturers in the case of BYD).

China’s Ministry of Industry and Information Technology and the State Administration for Market Regulation revealed concerns about lithium prices in a joint statement issued on Friday.

The statement said that the government aims to make the lithium battery industry chain ‘stable’; that’s great, rapid price increases (but of course they’ll be happy with price drops!)

The statement says that the industry and market regulators will crack down on behavior such as price gouging in the lithium battery industry chain as rising prices of raw materials, including lithium carbonate , puts EV companies under enormous pressure (Australian companies mainly supply spodumene, or lithium hydroxide). .

The carbonate comes mainly from brine and Chile is the largest producer through companies such as SQM, Albemarle and Argentine Australian producer Allkem. Carbonate was mentioned in translations of the statement.

Market regulators across China have been told to step up supervision and strictly investigate hoarding, price gouging and unfair competition in the upstream and downstream lithium battery industry to maintain market order, according to the announcement on Friday.

Local industry regulators should ‘guide’ companies at the top and bottom levels of the industry to strengthen communication and promote a stable and efficient synergistic development mechanism, the document said.

The two ministries said in their statement that they are encouraging industry players, including lithium cell and battery pack producers, producers of raw materials such as lithium, nickel and cobalt, and lithium recycling companies. lithium batteries to strengthen cooperation and guide industry chain participants to stabilize expectations and secure Supply by signing long-term orders.

These measures are not good news for commodity producers (like Tianqui and Ganfeng or carbonate exporters like Chileans like SQM and Albmarle or Argentina), but they are highly anticipated by Chinese battery makers and electric vehicle companies.

The price of lithium carbonate for batteries in China at one point last week topped 600,000 yuan ($85,380) per tonne, a record. The price dipped slightly to around RMB 590,000 per tonne over the weekend, according to Chinese media reports.

That’s around 55% up from RMB 364,000 per tonne at the beginning of February this year, and has led to claims that some battery makers plan to cut production due to high lithium carbonate prices.

The complaints are similar to when iron ore prices rose to record highs well above $200 a tonne in 2021 and Chinese steel mills complained, complained and pressured the government to set up a special company to “control” imports and prices of iron ore and other steelmaking materials. Those complaints faded when iron ore prices fell below $100 a tonne earlier this year and stayed there.

Emphasizing the point that the statement is directed at domestic producers and not exporters from countries like Australia, the statement not only says that price gouging will be clamped down and that lithium battery producers “should set development targets reasonable to avoid low-level and vicious homogeneous development. competition.”

Australian producers of spodumene and hydroxide should not ignore these complaints, but they should also not be reticent in pointing out that high prices have not stopped rising EV (or NEV in China) sales, especially BYD, which has outperformed Tesla. as the world leader. Subsidies or tax breaks help, but that’s business in China and elsewhere.

Glenn Dyer

Glenn Dyer has been a financial journalist and television producer for more than 40 years. He has worked for Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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