Demand for cheaper batteries in China sends one chemical soaring

The surging demand for cheaper electric vehicle batteries in China is supercharging a rally for one key raw material -- lithium carbonate.

For the first time since March 2018, prices of lithium carbonate in China have overtaken lithium hydroxide, driven by a resurgence in the lower-cost, power packs that use carbonate but not generally hydroxide.

These lithium-iron-phosphate (LFP) batteries are stealing the limelight in China after reductions to EV subsidies, just as competition intensifies in the automotive sector. Top EV makers including Tesla Inc and BYD Co. are already betting on them.

“Automakers in China have turned back to the more cost-effective LFP cathodes amid a low-subsidy environment," said Alice Yu, research analyst at S&P Global Market Intelligence.

Lithium carbonate is also thriving because it can be used in a wider range of EV batteries compared to lithium hydroxide, said Sharon Mustri, an analyst at BloombergNEF. Carbonate prices in China jumped 37% in January.

The LFP packs are simpler to manufacture and also use lower-cost materials -- making them about 20% cheaper to build than battery cells that use nickel, cobalt and manganese, according to BloombergNEF. Lithium hydroxide is mainly used in batteries with higher nickel content that power longer-range EV models.

The recent tightness in the carbonate market is also being driven by downstream restocking ahead of the Lunar New Year holiday, S&P Global Market Intelligence’s Yu said.

Broader sector demand has seen both lithium chemicals stage a rebound this year. Prices have been stabilizing after years in the doldrums with a tight market is expected this year.