ESS prices drop on lithium plunge, shifting market dominance to buyers

Prices for battery-grade lithium carbonate (99.5%) recently dropped from last year’s high point of RMB 600,000/MT to RMB 200,000/MT in the middle of this month, a 65% decrease in five months. InfoLink concludes several factors for this seemingly never-ending price plunge. Firstly, the waning pandemic revived production capacity and capacity expansion, resulting in an apparent trend of cell oversupply. Secondly, the underperforming downstream sectors of the renewable industry led to a decline in cell production. As cell manufacturers sustain utilization rate of merely 50%, demand for lithium is estimated to decrease by half. Thirdly, several lepidolite manufacturers resumed production in January, driving up inventory level. Meantime, there are many small and medium lithium carbonate manufacturers in Jiangxi Province that are not included in the calculation. The surplus of lithium is expected to affect market sentiment, causing a rapid price drop. In the short term, the robust growth in global lithium demand will continue to exert downward pressure on its prices. InfoLink projects the prices not to rebound until the second or third quarters, when the automotive market stabilizes in the second or third quarter.

Figure: Price trend of battery-grade lithium carbonate in China
Source: Investing.com

In addition to lithium carbonate, other materials of lithium batteries experience price declines as well. Take graphite, an anode material used in ESS batteries, for example. The price has plummeted more than 50% from the high point of RMB 60,000/MT in 2022 to as low as RMB 30,000/MT. Some buyers purchased at less than RMB 25,000/MT. This not only demonstrates the overwhelming supply of raw materials but also highlights the leverage of dominant companies in price negotiations. The reduced cost of lithium-ion battery materials enables ESS prices to dive. With that in mind and the technological advancement, the prices for DC-coupled energy storage containers have fallen to RMB 1.05-1.3/Wh, a 30% decrease compared with those in 2022.

Global renewable energy continues to develop swiftly. With China's mandatory energy storage requirements and the rise of standalone (shared) energy storage, more businesses invest in ESS integration, including electricity operators, energy management software companies, power electronics companies, developers, and start-ups. At the 11th Energy Storage International Conference and Expo held in Beijing from April 7 to April 9, InfoLink noticed integrators' presence in various exhibition halls and sensed the market atmosphere amid the price collapse of lithium carbonate and the unbalanced supply and demand of cells. The absolute dominance of cell sellers last year has been reversed.

Based on the analysis of the supply and demand of lithium, cells, and relevant materials, lithium-ion batteries are no longer in shortage. Prices for China's DC-coupled energy storage containers may drop below RMB 1/Wh in the second half of the year, which is bound to propel another growth spurt in the energy storage market. However, new companies springing up in the industry diminish the differentiation of energy storage products. Fierce competitions, price wars, and even a reshuffle are not out of the question. Therefore, it is a shared goal of the industry to consolidate the market and seek breakthroughs. 

Downstream sectors, such as integrators and EPC companies, focus on retaining customers, exploring new markets, and deploying in advance in emerging markets, such as C&I markets. As for upstream sectors, such as cell manufacturers, future technology development is crucial in addition to securing current market share. For example, large-scale ESS transitions from square cells of 280 Ah to 310-320 Ah, even 560 Ah, as revealed by EVE Energy. Residential ESS is also moving towards square cells of 100 Ah. The market begins to see Large cylindrical batteries similar in size to Tesla's 4680 battery, with an improvement in energy density, size, and design so as to connect cell and EPC sectors and reduce production costs. Therefore, product differentiation and technical prowess are the rigid requirements for companies to survive and grow in the turbulent market.