With worldwide demand for energy storage expanding daily, the battery market continues to grow and become more competitive. When you think about a market that has growing consumer demand, but also an increasing number of suppliers all those days spent in economics class would tell you that we should see prices decreasing, right? But are there more factors in play here that may actually lead to price increases at the consumer level?
The lithium battery market is more complex then it may seem. The first material that we think of in the production of this type of battery is of course, lithium. Lithium is the lightest metal in the periodic table, yet comes in bewildering amount of grades and compounds each demanding different prices. There is also not an over abundance of lithium suppliers worldwide so this must be the issue, a shortage of lithium? Nope, that’s not actually the main issue. While lithium production is limited its not the core reason for the current price increases we are seeing from China. Keep in mind that on average lithium (actually considered lithium carbonate, for battery production purposes) makes up only about 3% of the batteries cost.
We are seeing dramatic increases in another key raw material needed for battery production, Cobalt. Cobalt is a critical material used in the production of lithium ion batteries used in everything from laptop batteries, cell phone batteries, electric cars and countless other consumer applications.
As you can see in the chart below Chinese Cobalt prices have show sharp increases over the last six months. Since the majority of battery production is still taking place overseas this spells problems. This may be part of the reason forward thinking companies such as Tesla are looking to build stateside battery factories that can produce the dizzying amount of battery cells that Tesla is forecasting they will need.
US Cobalt prices have also followed the trend with consistent increase over the last six months, and an even sharper rise over the last three months. This increase in raw material prices is putting the squeeze on Asian manufactures to raise prices to cover their growing costs.
With prices for production growing, spiking demand and a softening of the Chinese economy overall are we looking at the beginning of a battery shortage? Probably not, but I assume that with the devaluation of the Chinese RMB we will at least be in for a overall price increase on lithium based batteries as we move forward into the second quarter of 2017.
Speculators are calling for continued slowing of the Chinese economy despite bullish forecasts for importation of lithium batteries to feed the worlds growing device dependence. All signs point towards no increase in production numbers in the Chinese Cobalt market, at least not within a time frame that will allow the supply demand curve to self correct without some type of impact on the US marketplace.
With a new president in the Whitehouse, new cabinet members and potentially new foreign trade policies it gives even the most subdued armchair economist reason to be leery of what will happen to the lithium battery market over the next few quarters. I think its safe to say that the US marketplace will see some type of pricing increase across all segments, to what extent remains a mystery.