Last year, due to the surge in demand for electric vehicles (EVs), prices of core battery minerals like lithium and nickel reached a peak. However, they have been on a decline recently. Battery cathode material companies that purchased these minerals when they were expensive are now facing challenges in offloading them. Due to their sales contract structure, they have to determine the selling price based on the current, lowered raw material prices. This is expected to impact their performance.
According to the London Metal Exchange, the price of lithium hydroxide used in EV batteries was recorded at US$30,000 per ton on Sept. 5, a drop of 34.8% from US$46,000 in early July. Nickel prices have also fallen. According to the Korea Resources Corporation, the price of nickel, which was at US$25,000 per ton last year, dropped to below US$20,000 per ton this August, the lowest since December 2021.
The decline in core battery mineral prices is due to the increase in supply over demand. Notably, as China stopped providing subsidies for EVs, demand for electric cars dropped, leading to an inventory increase for Chinese battery companies like CATL and BYD.
Industry insiders predict that this downward trend in mineral prices will continue for a while. Market research firm SNE Research recently predicted that lithium prices will find it challenging to rebound until 2028. This is because lithium mining is growing rapidly and supply is increasing faster than the demand rate.
SNE Research projected, “While global lithium production will increase from 950,000 tons this year to 3.33 million tons by 2030, lithium demand will rise from 790,000 tons to 2.53 million tons.”
Battery cathode material companies that directly purchase and process minerals are on high alert due to the decline in lithium prices. They often sign supply contracts linking the current mineral price with the sale price, regardless of the cost they paid for the minerals earlier.
These cathode companies had purchased lithium at a high price last year due to the surge in EV demand. However, when selling cathodes, they need to use the current lower lithium prices as a reference, inevitably reducing their margins. This combined with currency depreciation worsens profitability.
In reality, major cathode manufacturers like LG Chem, POSCO FUTURE M, and EcoPro BM underperformed in the past quarter due to declining lithium prices.
LG Chem’s advanced materials division recorded an operating profit of 184.6 billion won, a 45% decrease compared to the same period last year. POSCO FUTURE M also saw a decrease of 5.6% from last year’s second quarter, recording an operating profit of 52.1 billion won. EcoPro BM saw an operating profit of 114.7 billion won, an 11.5% increase from last year’s second quarter, but fell short of the initial stock market expectation of 128.9 billion won.
The slowdown in performance of these cathode companies is expected to continue for the second half of the year. Jo Chul-hee, a researcher at Korea Investment & Securities, said, “The decrease in the price of key secondary battery raw materials like lithium and nickel this year will lead to a decline in cathode selling prices starting the third quarter.” He also observed that there would be significant reductions in the selling prices of secondary battery materials and sets in the second half due to the decline in major mineral prices.
However, the situation is different for battery cell companies like LG Energy Solution, SK on, and Samsung SDI. They have price linkage contracts with both material suppliers and finished vehicle manufacturers. Thus, whether buying materials or selling cells, they base their prices on current mineral market rates, ensuring they are barely affected by raw material price fluctuations.