VINACHEM

The prices of lithium and nickel, key materials used in electric vehicle batteries, have nose-dived due to a sharp slowdown in growing demand in China.

Three-month nickel futures closed at $16,235 per tonne on the London Metal Exchange Friday, down about 50% from the end of 2022. The metal fell to a 32-month low in November and has been stuck at that level since.

The price of lithium carbonate, the international benchmark for lithium, fell to 98,000 yuan ($13,700) per tonne on Friday, according to British research firm Argus Media. The value has plummeted more than 80% from the end of 2022. In early January, lithium touched a low not seen in almost two and a half years.

The falloffs are connected to the softening demand in China, the biggest EV manufacturing market in the world. China's output of new energy vehicles, a category that includes EVs, rose about 30% last year, according to the country's National Bureau of Statistics. That pace is down from the 2.5-fold jump in 2021 and the roughly doubling of production in 2022.

"China's explosive growth marked by EV sales and exports doubling annually is over, and the growth will be more moderate going forward," said Li Xuelian, senior analyst at the Marubeni Research Institute.

Even as the maturing EV market has weighed down on demand for lithium and nickel, supply had expanded rapidly in anticipation of future demand. Large lithium projects have started mostly in South American countries like Argentina, while Indonesia is advancing a giant increase of nickel output.

Last year, lithium production worldwide expanded 23%, and nickel output grew by 10%, according to estimates by the U.S. Geological Survey.

Given that nickel is also found in stainless steel used for industrial equipment and building materials, China's slumping property market has undercut demand for the metal as well. Last year, investment for real estate development in China sank 9.6%, according to the National Bureau of Statistics.

The drop in nickel and lithium prices has prompted some facilities to suspend or completely cease operations. Australian miner BHP will temporarily halt parts of its nickel concentrator operation, according to media reports. Core Lithium, another Australian mining company, said it was suspending operations at one lithium project due to low prices.

Goldman Sachs has said that roughly 110,000 tonnes in supplies of class 1 nickel -- the high grade used for EV batteries -- would be unprofitable at current prices. If prices were to fall to the 12-month projection of $15,000, then 190,000 tonnes in supplies would be unprofitable, according to the investment bank.

In such an event, about 5% of the unprocessed nickel produced worldwide would be at risk of not producing a profit.

Elsewhere in the nonferrous-metal industry, three-month futures for zinc fell to a roughly two-month low on Friday. Nyrstar, a leading European mineral supplier, said it had shut down a Dutch plant responsible for about 2% of global zinc production capacity for maintenance.

In many cases, mines and refineries that have been shut down are unable to readily start up again due to labor shortages or equipment problems. There are concerns that such conditions could cause prices to spike.

Lithium rose to historic prices in 2022 due to a supply shortage. The price of zinc also climbed following a string of mine closures that took place in response to the global financial crisis.

"Since it's not easy to restore supplies quickly, supply reductions are prone to become a subject of speculation in the medium- to long-term," said a researcher at Mizuho Bank. "Currently, weak demand and receding expectations of an early U.S. rate cut are weighing down on prices, but there is a potential that they would lead to perceived tightness once demand picks up."

Source: Niikkei