ILMA Compoundings - February 2020 - 10

INDUSTRY RUNDOWN

Lithium, Cobalt Prices
Fall as Supply Outpaces
Demand
Late last year, prices for lithium and cobalt, two materials used in rechargeable batteries, fell over 50% from
2018 peaks. Previously analysts had expected that demand for those materials would outstrip supply based
mainly on China's electric vehicle (EV) market.
However, EV sales are now on the decline in China, and
that's having a significant impact. Citigroup is now projecting the supply of both lithium and cobalt to match or
exceed demand through 2023.
George Heppel, an analyst at commodity research firm
CRU, told The Wall Street Journal (WSJ ), "A lot of the price
gains we saw in 2017 [and] 2018 were not justified." He
added, "The investment [in supply] that needed to be made
in the market has been made, and I don't see us returning to
those levels anytime soon."
Until recently, many pundits thought the market for EVs
in China would grow exponentially. Less than a year ago,
Jack Barkenbus, a visiting scholar at Vanderbilt Institute
for Energy & Environment, wrote in The Conversation that
China, not the U.S., would bring about the EV revolution.
His proclamation made sense at the time because, in 2018,
China represented 55% of worldwide EV sales.
Much of that demand is thanks to the billions of dollars
in subsidies and tax credits going to Chinese manufacturers
of EVs and businesses and consumers buying them. The
government also saw EVs as an opportunity to cut down on
the country's significant air pollution problem.
In 2017, China announced a goal of achieving 7 million
in EV sales, or a fifth of all auto sales, by 2025. With that
audacious goal and the subsidies available, entrepreneurs got
to work, and 486 new EV (NEV) manufacturing companies
registered with the government. NEVs include plug-in
hybrids, battery-only EVs and vehicles powered by hydrogen fuel cells.
Fearing an industry bubble, in early 2019, the Chinese
government slashed subsidies, and analysts now expect the

FEBRUARY 2020

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government will do away with them entirely. Officials in
China also told cities to loosen regulations limiting the
number of gasoline vehicles sold. "The change to subsidies
was a lot more drastic than a lot of people expected in the
market," Heppel told WSJ.
All this brings us back to a supply-and-demand issue.
There is an abundance of lithium in the earth's crust to be
mined. Previous high prices and China's commitment to
EVs encouraged everyone to get into the game, and mines
opened worldwide. This includes China, which has developed its own lithium deposits.
As of December, there was no news on further changes to
subsidies, but China did announce an update to that 2025
goal. The country is now hoping NEV sales reach one-quarter of all car sales by that date. According to Reuters, China
is also discussing introducing stricter green car quotas in the
coming years that would require automakers to produce a
certain amount of NEVs.

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