Upstream material and cell price hikes weigh on supply chain

Over the past year, the energy storage industry has been struggled with the pandemic and raw material price hikes. Prices for battery grade Lithium Carbonate rose beyond RMB 200,000/MT in December 2021, from RMB 80,000/MT in March. This month, official price quote exceeds RMB 500,000/MT, as raw material price hikes intensify amid Russia-Ukraine conflicts. As a result of skyrocketing raw material costs, cell prices rise ceaselessly. Such pressure is passing from downstream companies onto end users, as in the case of increasingly expensive EVs.  

In the face of robust downstream demand, lithium-ion battery supply appears short. The imbalanced supply-demand relationship results in price hikes. Meanwhile, some suppliers and traders hoarded and jacked up prices, elevating overall prices across the industry.
 

Surging ESS costs

As mentioned in “Global battery capacity could hit 1,500 GWh by 2023 amid EV battery shortage and rising prices,” prices for LFP fleets doubled, from RMB 0.5/Wh in early 2021 to RMB 1.0/Wh at the end of the year. In the meantime, ESS costs climbed to RMB 1.5/Wh. Three months into 2022, ESS prices have come in at RMB 1.7-1.8/Wh, a 12-20% increase on last year’s levels.

The result of a tender in China announced on March 22 shows Tier-1 manufacturers winning bid for a 4 MW/8 MWh ESS with RMB 1,240,000, translating to RMB 1.55/Wh. Therefore, it may be commonplace for general companies to offer price quotes higher than RMB 1.7/Wh.
 

Regional differences

Chinese companies, having secured leading positions of the cell supply chain in terms of production capacity, shipping volume, and EV market in recent years, have delivery advantages and a bigger say in price negotiations. However, the country becomes more price-sensitive than Europe and the U.S., as increasingly expensive raw materials push up cell prices across the industrial chain. In Europe and the U.S., given current electricity charge, commodity price, tariffs, and other external factors, prices do not rise as dramatically as in China, where prices soared more than double.

The larger concern lies in product lead time. Whilst actively developing projects, international Tier-1 ESS manufacturers are often questioned by end users about their ability to deliver and install as scheduled, according to market sources. For instance, projects of some European and U.S. companies originally scheduled to complete construction by the fourth quarter of 2021 were delayed to the first and second quarter this yera due to delivery issues.
 

 When will price hikes stop?

China is the bellwether of global cell manufacturing. The government attends to the problem of supply chain bottlenecks seriously, whilst companies across the supply chain take proactive coping measures. For example, upstream and cell manufacturers engaged in the mining industry and the expansion of cell manufacturing plants. In the meantime, Chinese companies step up expansions in overseas markets, as South Korea, Europe, and the U.S. strongly support local manufacturing.

CATL, the world’s leading battery cell maker, will set up plant with 80 GWh of annual production capacity in the U.S., receiving the most attentions in recent terms.

However, it requires rather long times for investments in mining and production expansion to materialize. For instance, a cell manufacturing plant needs about three years to come into operation. Therefore, with EV and ESS industries flourishing, the imbalanced supply-demand relationship is not easing in the short term. InfoLink does not see cell prices returning to a downward trend until the first half of 2023, even in the optimistic scenario.

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