In the first half of 2018, the concentration of the power battery industry steadily increased. Deep vertical integration and broad horizontal integration of the lithium battery industry chain were underway, accelerating industry consolidation. Market enthusiasm for leading companies in specific sub-sectors of the industry chain was high, leading to strong stock price performance for related companies (such as DangSheng Technology and XinZhouBang). This also drove up nickel prices, which are related to power batteries. In the second half of 2018, with the implementation of the new energy vehicle subsidy reduction policy, the financial situation in the industry chain tightened. Due to the delayed receipt of subsidies and reduced amounts by vehicle manufacturers, the midstream power battery sector faced increased pressure to collect payments, resulting in tighter cash flow and a slowdown in upstream raw material procurement. Prices of cathode materials and electrolytes declined. After fluctuating at high levels, nickel prices lacked further upward momentum, and the upside potential remained limited, leading to a correction following the release of negative macroeconomic factors.
Upstream raw material production capacity is expanding faster than demand.
Raw material prices fall
Since March 2018, prices of upstream cathode materials, ternary precursors, and electrolytes have declined due to faster capacity expansion than demand and industry consolidation and reshuffling, which has also dragged down nickel prices to some extent. As of early December 2018, the prices of ternary material NCM523, ternary precursors, cathode material lithium iron phosphate, and electrolytes were RMB 169,000/ton, RMB 101,500/ton, RMB 60,500/ton, and RMB 41,500/ton, respectively, down RMB 71,000/ton, RMB 48,500/ton, RMB 25,000/ton, and RMB 7,500/ton from March 2018. Constrained by the fact that high-nickel ternary batteries are not yet in large-scale production, the growth rate of nickel sulfate production is also limited. SMM predicts that in 2019, nickel sulfate consumption will only be 32,000 tons, having a relatively small impact on nickel consumption growth.
NCM, NCA high-nickel materials
The application of ternary lithium batteries will gradually increase.
In ternary lithium-ion battery cathode materials, the nickel content determines the number of active molecules and specific capacity. Increasing nickel usage helps improve battery energy density. NCM and NCA have significantly higher specific capacity and cycle life than other materials, and therefore their prices are also higher than LCO, LMO, and LFP. It is predicted that the new demand for cathode materials will reach 35,000 tons in 2018 and 43,000 tons in 2019. Currently, in high-nickel ternary cathode materials, NCM523 accounts for 64%, NCM622 for 18%, NCM333 for 13%, NCM811 for 3%, and NCA for 2%. Given that high cobalt prices have increased the cost of ternary lithium-ion batteries, and the physicochemical properties of nickel help improve battery specific capacity and cost advantages, future ternary lithium-ion batteries will trend towards "high nickel and low cobalt," with NCM811 becoming the main ternary lithium-ion battery variety used in new energy vehicles.
Data shows that in 2017, ternary lithium batteries accounted for 40% of the total battery market share, and this is expected to rise to around 60% by 2025. Currently, global battery nickel consumption is around 50,000 tons, accounting for 3% of total nickel demand. Domestic battery nickel consumption is approximately 20,000 tons, accounting for 2% of total nickel demand. With the rapid growth in the production and sales of new energy vehicles, the future potential for increasing battery nickel consumption is very significant. It is estimated that from 2020 to 2025, China's annual battery nickel consumption will average around 100,000 tons, increasing its share of overall nickel consumption to 10%.
Rapid development of new energy vehicles
Driven by increased demand for ternary lithium batteries
Over the past three years, stimulated by new energy vehicle subsidies and strongly supported by energy conservation and environmental protection policies, China's new energy vehicle production and sales have experienced rapid growth. From 2015 to 2017, China's new energy vehicle sales reached 330,000, 500,000, and 770,000 units respectively, with an average annual growth rate of 52%, maintaining a high growth rate. In June 2018, affected by the reduction in new energy vehicle subsidies, the month-on-month growth rate of new energy vehicle sales slowed down. However, from January to November 2018, China's cumulative new energy vehicle sales reached 1.03 million units, a 71.6% increase compared to the same period in 2017, reflecting that the new energy vehicle sector will remain the mainstream of growth in the automotive industry. Over the past four years, the proportion of new energy vehicle sales in total vehicle sales in China has increased year by year, from 1.3% in 2015 to about 5% currently, and this growth trend is expected to continue. It is projected that the production and sales of new energy vehicles will maintain rapid growth in 2019, which will also drive a steady increase in demand for ternary lithium batteries.
Future Consolidation Trends in the Ternary Lithium Battery Industry
According to reports from domestic and international research institutions, the future consolidation of the ternary lithium battery industry will exhibit three trends: 1. Deep vertical integration and broad horizontal integration of the lithium battery industry chain, with raw material procurement becoming more centralized. Downstream and midstream companies will largely concentrate their procurement of high-nickel materials from leading companies. 2. Cost control through upstream and downstream expansion, leveraging technological R&D to enhance product added value. 3. Companies that enter and deeply integrate with the global core system will achieve dual growth, gaining both industry incremental growth and increased internal market share. For example, leading upstream raw material companies such as Dangsheng Technology and Xinzhoubang are strengthening cooperation with midstream battery companies like CATL, Guoxuan High-Tech, Samsung, and LG to stabilize customer resources from leading midstream and downstream companies and seize market share in upstream raw materials. Midstream battery companies like CATL and Guoxuan High-Tech are strengthening cooperation with downstream automakers such as Volkswagen, BMW, Tesla, Hyundai, and Samsung, as well as digital electronics companies, securing major customer resources and seizing market share in the battery sector.
Market Outlook
In 2019, the internal and external macroeconomic environment still requires close monitoring. External constraints stem from the weakening US economic outlook and the lingering negative impact of the trade war, dragging down global demand. Internal constraints include economic restructuring and deleveraging leading to a slowdown in economic growth. During this process, supply and demand structures, as well as financial structures, will also undergo adjustments. Demand restructuring leads to a decrease in total demand, but due to slow and sluggish supply-side adjustments, overcapacity has emerged, necessitating simultaneous capacity reduction and deleveraging. Although domestic policies have warmed up, this has only boosted market expectations; a substantial improvement in the real economy will take considerable time. In 2019, non-ferrous metal prices are not expected to experience a sustained upward trend; any temporary rebounds will likely be supported by tight supply and demand in certain periods along the industry chain.
Looking at the fundamentals of nickel, the increasing global supply of laterite nickel ore and the rising production of nickel pig iron in Indonesia are relatively certain trends for the future. However, due to limited reserves, the supply of sulfide nickel ore will continue to tighten, and the global electrolytic nickel market will likely continue to experience a supply-demand gap. From the demand side, electrolytic nickel price fluctuations are driven by the performance of high-nickel ternary batteries. Although the short-to-medium term demand for ternary batteries has been affected by the consolidation and restructuring of the power battery industry, leading to a slowdown in the expansion of nickel sulfate production capacity, the long-term demand for high-nickel ternary materials from new energy vehicle power batteries remains significant. The proportion of nickel demand in the battery sector will gradually increase, which may provide long-term support for nickel prices. Nickel pig iron price fluctuations are driven by the performance of stainless steel. Given that stainless steel end-use demand is concentrated in traditional sectors such as construction, transportation, chemicals, kitchenware, and machinery, it is significantly affected by macroeconomic fluctuations. Therefore, the short-to-medium term resistance to nickel price increases may come from the stainless steel industry chain. In 2019, with the macroeconomic environment unlikely to improve and the nickel market supply and demand situation relatively loose, the upside potential for nickel prices is limited, and the trading range may gradually shift downwards.
