Lithium: Chinese cathode manufacturers hit hard by coronavirus in Q1

Major Chinese cathode manufacturers have been impacted heavily in Q1 amidst disruption caused by the COVID19 pandemic. Revenue of Ningbo Shanshan plunged by 39.85% in the first quarter of 2020 y-on-y, to RMB1.22Bn (US$170M). The company incurred a net loss of RMB83.7M (US$11.8M), compared with a net profit of RMB35.4M (US$5M) over the same period last year.

GEM and Ronbay Technology also reported a revenue loss in Q1 2020, with a decrease of 27.04% and 21.13% y-on-y, respectively. GEM posted a 37.14% year-on-year drop in net profit to RMB110M (US$15.5M) for Q1 2020. 

Roskill View

The drop in Q1 2020 revenue of Chinese cathode manufacturers is attributed to weak downstream demand and pandemic-related production disruptions. As China went into lockdown, consumers refrained from making new purchases amidst the pandemic and economic uncertainty. Sales of new energy vehicles (NEVs – which includes both full EVs and hybrids) in China saw a fall of 56.4% in Q1 2020, a reduction of 114,000 units compared to Q1 2019, with major automotive OEM BYD, reporting sales of just 2,803 NEVs in February. In addition to weak NEV sales, sales of smart phones declined by 22% in Q1 2020 y-on-y, further compounding the impact on demand for Li-ion battery cells of both large and small size.

In June 2019, the Chinese government cut its NEV subsidies by about half, causing an almost immediate response from the market. Cathode materials demand fell significantly as a result of falling NEV sales in H2 2019, a trend which has continued into 2020. In Q1, many Chinese cathode producers witnessed their worst-ever decline in sales because of the lockdowns enforced to control the spread of the COVID-19 pandemic. As a result, a couple of manufactures have scaled back expansion plans since February. 

Roskill believes that the Chinese EV market will be the key driving force behind continued growth of the Chinese cathode market, with manufacturers expected to increase capacity in line with forecast demand. Since mid-April, China has been easing its lockdown restrictions and the economy is slowly recovering to pre-COVID-19 levels. Incentives provided by the Chinese government, including the extension of tax exemptions and subsidies, are aimed at boosting NEV sales in the remainder of 2020 and 2021. This is likely to sustain some demand growth for cathode materials and support manufacturers in China, although the build-up of inventories at battery cell manufacturers and strong competition for market share in the Chinese domestic market means manufacturers will continue to face strong headwinds in H2 2020 as the global Li-ion battery supply chain recovers.

Roskill’s NEW Lithium: Outlook to 2030, 17th Edition report will be published in July 2020 and include scenario assessments for the impact of COVID-19 on the lithium supply chain. Click here to download the brochure and sample pages for the report, or to access further information.

Roskill’s Lithium Mining Project Analysis; Technical and Financial Evaluation report reviews the plans of developers evaluating greenfield projects that could contribute to lithium supply in the 2020s. Click here for more details.