The rising price of lithium and cobalt has been declining since 2018. In 2018, however, new energy vehicles are growing against the trend. Whether the cobalt and lithium prices of the “rapid development” of new energy vehicles can be “two degrees” or not depends on the development trend of the downstream new energy vehicles besides the external factors.

The price of lithium carbonate, which has risen since 2015, has fallen steadily since 2018. According to business association data, on February 24, 2019, the comprehensive price of industrial lithium carbonate in East China was 73,000 yuan/ton, which was the same as the previous day’s data, down 5.19% from February 15. In terms of cobalt price, the price of cobalt trioxide has been rising steadily since 2016, and has exceeded 300,000 yuan per ton by the end of March 2017. Since 2018, MB UK Metals reported that cobalt prices have fallen steadily. Data show that on February 20, 2019, MB UK Metals reported cobalt prices of $22.5 per pound, down 8.35% from February 15.

Lithium and cobalt are important raw materials in new energy batteries, and they are at the top of the new energy industry chain. Lithium deposits are mainly distributed in South America, North America and Asia. According to data released by the United States Geological Survey (USGS) in 2017, the global lithium resources are about 47 million tons and the proven reserves are about 14 million tons. Among the proven lithium reserves, Bolivia and Argentina rank first in lithium resources, while China ranks fourth. The distribution of cobalt in the world is uneven, and the supply of cobalt in Congo (Kinshasa), the main mineral area in the world, is mainly composed of Mines owned by large mining enterprises and surface hand mining. With the decline of cobalt price, global mining and surface manual mining profits have been compressed. According to Huatai Securities, on February 8, 2019, the gross profit margin of Congo Kingdom hand mining decreased from 320,000 yuan/ton in April 2018 to 140,000 yuan/ton.

Market analysts believe that the continued decline in lithium and cobalt prices is due to excess production capacity caused by previous excessive mining, resulting in a market of supply exceeding demand. At present, cobalt and lithium prices are still in the process of bottoming.

Once upon a time, lithium and cobalt prices went up all the way. From 2015 to 2018, due to the rapid growth of the scale of new energy vehicles, orders for power batteries increased dramatically, driving the price of lithium and cobalt soaring. The price index of lithium carbonate has been growing steadily since 2015, declining somewhat in 2017, then rising again, and the price of cobalt has also been outstanding in the period from 2015 to 2018. The continuous rise in raw material prices has led to increasing investment in new energy minerals and rapid increase in production capacity. Overcapacity has kept lithium and cobalt prices under pressure since the beginning of 2018.

Unlike the price of lithium and cobalt under pressure, the production and sales of new energy automobiles are still growing rapidly in 2018. According to the data released by the China Automobile Industry Association on January 14 this year, the production and sales of new energy vehicles in 2018 were 1.27 million and 1.256 million respectively, up 59.9% and 61.7% respectively from the same period last year. Among them, 986,000 pure electric vehicles and 984,000 pure electric vehicles were produced and sold, up 47.9% and 50.8% respectively from the same period last year; 283,000 plug-in hybrid vehicles and 271,000 plug-in hybrid vehicles were produced and sold, up 122% and 118% respectively from the same period last year; and 1527 fuel cell vehicles were produced and sold. Globally, according to BNEF forecasts, global sales of new energy vehicles will reach 11 million by 2025, with a penetration rate of 11%. Luke Kissam, chief executive of Albemarle, a lithium producer that accounts for one-third of the world’s total production, told analysts in a recent conference call that as new capacity increases, large producers such as Albemarle, SQM and Tianqi will continue to dominate the likely oversupply market in 2019. With the increasing demand for lithium for new technologies, the market will continue to be tight in the next few years.

Whether the price of lithium and cobalt can rise rapidly again depends on the expectation of the demand for new energy vehicles in the future. According to Fortune Securities estimates, in the long run, new energy vehicles will drive demand for millions of tons of lithium carbonate and hundreds of thousands of tons of cobalt by 2030. If the new energy industry continues to grow in the future, lithium and cobalt prices are expected to return to a reasonable range.

In the short run, the lower profits of lithium and cobalt in the upstream lead to accelerated liquidation of some enterprises, and the industry will shift from excessive supply to balanced supply and demand. Huatai Securities believes that the lithium price in February 2019 has approached the industry cost, and the head enterprises still have the advantage of mastering high-quality lithium resources because of their large-scale operation. Under the neutral assumption, the domestic supply and demand pattern of cobalt in 2019-2021 will change from balance to surplus, and the price will face further downward pressure. It is expected that the excess value of the cobalt industry will reach a stage high in this year and next two years.