Lithium prices boosted by China’s policy drive on energy storage

Chinese lithium prices are getting a boost from growing confidence in demand for large-scale battery storage.

Energy storage systems, or ESS, are in vogue, thanks to policy tailwinds in China and stronger momentum worldwide for equipment that can stabilize electricity grids and support surging demand from the data centers that power artificial intelligence.

The most-active lithium carbonate contract on the Guangzhou Futures Exchange has risen for five sessions in a row. The spot market in China has rebounded to a two-month high, although prices are still about 85% below their peak in 2022.

Batteries are one of the new engines of China’s industrial growth strategy alongside solar and electric vehicles. Last month, the government unveiled measures aimed at scaling up ESS capacity and investment, including compensation mechanisms to ensure enough storage has been built to meet peak demand.

The plan is to more than double capacity to 180 gigawatts by 2027, which will help backstop rapidly increasing flows of, often intermittent, wind and solar power to the grid. That’s putting key ingredients for batteries, like lithium, in high demand, helping to alleviate concerns around egregious oversupply that first torpedoed prices at the end of 2022.

Global players are echoing the optimism. South Korea’s Samsung SDI Co. has been switching some EV battery lines to boost ESS production in the US. Australian miner PLS Ltd. said last week the sector is growing in “leaps and bounds.” According to BloombergNEF, energy storage additions around the world are on track to notch records in every year to 2035, cementing China and the US as the largest markets.

While demand for EV batteries will grow in the mid-20% range this year, the percentage expansion in ESS will be in the mid-50s, according to Chris Williams, analyst at consultancy Adamas Intelligence.

Market dynamics for lithium also favor higher prices. “We are entering a seasonally strong period on the demand side,” Williams said, adding that port inventories for the raw material have started to diminish.

The supply outlook in China is murky, after the government’s bid to control capacity left producers at the mercy of regulators. In the lithium hub of Yichun, the fate of a mine run by the world’s biggest EV battery maker, Contemporary Amperex Technology Co. Ltd., still hasn’t been decided, after the project was halted in August having failed to get its permit renewed.

(By Annie Lee)