[Bojo, Battery] "Q4 Lithium Price $22 per kg... Signal Nearing Bottom"

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Lithium phosphate produced from Argentina's Hombre Muerto Salt Lake developed by POSCO Holdings. Photo by Jeong Donghoon

Lithium prices have continued to fall, dropping to one-fifth of their peak value. This decline in lithium prices has also led to a decrease in battery prices. However, there is analysis suggesting that lithium prices have fallen as far as they can and are unlikely to drop further. In other words, they may have hit bottom and could rise again.

As of the 29th of last month, the price of lithium carbonate was recorded at 109.5 yuan per kilogram, marking the lowest point in two years and three months since August 27, 2021. This represents a drop of about 81.1% compared to the all-time high of 581.5 yuan recorded in November last year. The price has fallen to one-fifth of its peak. This is due to decreased demand for electric vehicles and oversupply of Chinese-made batteries.

The decline in lithium prices negatively affects the price of cathode materials. Lithium accounts for about 40% of the cost of cathode materials. Cathode material companies sign contracts linking mineral prices such as lithium and nickel to their selling prices. The selling price is based on the mineral prices at the time the final product, the cathode material, is sold, not when the minerals are purchased. When lithium prices rise, profits increase, but when lithium prices fall, profits decrease. The phenomenon where rising raw material prices lead to higher product prices and thus increased margins when products are sold is called the 'Lagging Effect,' and the opposite occurring is referred to as the 'Reverse Lagging Effect.'

According to export data from the Korea Customs Service, the export price of domestic NCM (Nickel-Cobalt-Manganese) cathode materials in October was $38.2 per kWh (kilowatt-hour). This is about 25.2% lower than the highest cathode material price in the past two years, which was $51.1 per kWh in the first quarter of this year. It fell below $40 for the first time since March last year. Fluctuations in cathode material prices, which account for more than 40% of battery prices, are also negatively impacting battery cell prices.

Due to the decline in lithium prices and the slowdown in electric vehicle demand, the weakness in battery prices centered on cathode materials is expected to continue for the time being. Hyunwook Lee, a researcher at IBK Investment & Securities, stated in a report, "The decline in battery demand in the European electric vehicle market and the drop in the average selling price (ASP) of cathode materials due to falling lithium prices are expected to continue into the fourth quarter." He explained, "The ASP of cathode materials is projected to fall by about 10% in the fourth quarter of this year, and since major metal prices are on a downward trend, the ASP is expected to continue declining into the first quarter of next year." Competition for 'K cathode materials' is also increasing. European companies such as Belgian cathode material maker Umicore and global chemical giant BASF are showing strong growth.

There is also an assessment that lithium prices have approached 'rock bottom' by preemptively reflecting the global economic slowdown and decreased electric vehicle demand. Juminwoo Joo, a researcher at NH Investment & Securities, said, "The average selling price of SQM, the world's second-largest lithium mining company, is expected to fall to $22 per kilogram in the fourth quarter of this year," adding, "Since the average production cost of lithium for companies like SQM is between $18 and $20 per kilogram, it is unlikely that prices will fall further." If selling prices fall below production costs, lithium producers are more likely to reduce supply rather than produce at a loss. This could serve as a momentum for a rebound in lithium prices. When lithium prices rise, the lagging effect occurs. Companies can sell batteries at prices based on higher raw material costs while using previously purchased cheaper raw materials. This marks a time when profits for battery cell and cathode material companies increase again.