Business & Economy

Lithium cools in China after end of electricity subsidies

By Victor Escribano

Shanghai, China, Mar 6 (EFE).- Lithium, a key material for the manufacture of electric vehicle batteries, multiplied its price several times throughout 2022 to later lose almost 30 percent of its value in the Chinese market in just three months, the largest in the world for this type of car.

Lithium carbonate reached its maximum peak at the end of November 2022, when each ton was about RMB 597,500 ($ 85,939), a figure from which it fell to RMB 425,000 on Feb. 21, according to data from the Fastmarkets commodity price estimation agency.

However, the current levels continue to contrast with those of 2021, which, according to data cited by the state newspaper Global Times, fluctuated below RMB 100,000.

The country’s press said in November the rapid rise in prices was due to the national shortage of lithium carbonate in a market dominated by smaller factories that offer small amounts of lithium at high prices in a time of great competition for raw materials among battery manufacturers.

In 2022, the production of lithium-ion batteries was more than double (+130 percent) than the previous year, reaching RMB 1.2 trillion according to official data released by China’s Industry and Information Technology Ministry.

The craze for lithium reached such a point that the Chinese government recently sent a team of officials to Yichun in the face of the “mining chaos” that had led multitudes of rural residents to try to extract lepidolite – a mineral that is used as a source secondary lithium – in a kind of modern “gold rush.” This caused environmental damage and even several traffic accidents due to the influx of trucks transporting the material.

The main reason behind the current fall in the price of lithium is the end of the subsidies Chinese authorities granted to the purchase of electric vehicles, which came into force in 2009 and disappeared by 2022.

After saying goodbye to these aids, electric sales in the world’s largest market for this type of car fell in January by almost half (-48 percent) than in the last month of 2022, partly because many buyers accelerated prices and procedures to take advantage of the subsidies before they ceased to exist.

The new situation represents an “increase of thousands of yuan in costs” for manufacturers at a time of intense competition in the sector, according to the local press.

The China Passenger Car Association recently said potential buyers of electric vehicles are preferring to wait, not only due to the possibility of Beijing announcing new subsidies but also due to a price war in the sector started by the American Tesla.

“The macroeconomic environment is not favorable. (Chinese) citizens are very cautious when it comes to consuming, especially when it comes to something as expensive as a car,” a source from the lithium production sector was quoted as saying by Fastmarkets.

This uncertainty has encouraged, according to analysts quoted in the Chinese economic press, manufacturers to look for possible ways of expanding abroad, with an eye, for example, on the European market. There, the ban on the sale of gasoline vehicles and diesel from 2035 could represent an opportunity for electric producers in the country.

Some media say that the largest manufacturer of batteries for electric vehicles in the world, CATL, is already offering significant discounts to its main local customers.


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