China is whining about high lithium prices and the dangers they pose to EV companies and EV sales and is now looking to try and control then dampen prices which continue to skyrocket.
But before investors in foreign lithium and lithium ore producers (such as Allkem, Pilbara Minerals or IGO) go running for the exits, they should consider what the Chinese government is really trying to do.
Like earlier commentary and action in thermal coal, iron ore, copper, nickel and oil, the Chinese government always blames foreigners and then speculators (locals in particular) who love to punt in commodities and have done so for years, especially in copper.
Campaigns are launched, the odd person or company singled out, jailed, ‘disappeared’ or punished in other ways, price limits introduced and life then settles back down again.
Lithium is different because the overwhelming majority of battery quality material is produced or processed by Chinese companies like Tianqui or Ganfeng or CATL, BYD and others.
These, along with US group Albemarle, which has operations in China, are the world’s biggest lithium processors, refiners, battery makers (and EV makers in the case of BYD).
China’s Ministry of Industry and Information Technology and the State Administration for Market Regulation revealed the concern about lithium prices in a joint statement issued on Friday.
The statement said the government aims to make the lithium battery industry chain ‘stable’ – that is cool the rapid price rises (but of course they will be content with price falls!)
The statement said the industry and market regulators will crack down on behaviour like price gouging in the lithium battery industry chain, as rising raw material prices, including lithium carbonate, put electric vehicle companies under enormous pressure (Australian companies mostly supply spodumene or lithium hydroxide).
Carbonate mostly comes from brine and Chile is the largest producer through the likes of SQM, Albemarle and the Australian Argentinian 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 Friday’s statement.
Local industry regulators need to ‘guide’ companies upstream and downstream in the industry to strengthen communication and promote a stable and efficient synergistic development mechanism, the document reads.
The two ministries said in their statement that they are encouraging industry players including lithium cell and battery pack producers, producers of raw materials including lithium, nickel and cobalt, and lithium battery recycling companies to strengthen cooperation and guide industry chain participants to stabilise expectations and secure supply by signing long-term orders.
These measures are not good news for raw material producers (such as Tianqui and Ganfeng or carbonate exporters like those from Chile such as SQM and Albmarle or from Argentina), but they are long-awaited for Chinese battery manufacturers and electric vehicle companies.
The price of battery-grade lithium carbonate in China at one point last week exceeded 600,000 yuan ($US85,380) a tonne, a record high. The price eased slightly to about RMB 590,000 a tonne at the weekend, according to Chinese media reports.
That’s up around 55% from RMB 364,000 a ton in early February this year, and has led to claims that some battery makers are planning to cut production because of the high lithium carbonate prices.
The complaints are similar to when iron ore prices surged to record levels well above $200 a tonne in 2021 and Chinese steel mills whinged, whined and moaned and pressured the government into setting up a special company to ‘control’ imports and prices of iron ore and other steel making materials. Those complaints have died away as iron ore prices slumped under $US100 a tonne earlier this year and remained there.
Emphasising the point that the statement is aimed at domestic producers and not exporters from countries like Australia, the statement not only says price gouging will see a crackdown and that lithium battery producers “should set reasonable development goals to avoid low-level homogeneous development and vicious competition.”
Australian spodumene and hydroxide producers shouldn’t ignore these complaints but neither should they be backward in pointing out that the high prices haven’t stopped sales of EVs (or NEVs in China) rising, especially from the likes of BYD which has overtaken Tesla as the global leader. Subsidies or tax breaks help, but that’s business in China and elsewhere.
