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New Chinese EV subsidies may boost local lithium prices

January 10, 2017

The introduction of a new government support programme ends the period of uncertainty which followed an investigation into "cheating” on the previous framework.

 

A new electric vehicle (EV) subsidy policy announced by the Chinese government could fuel domestic lithium prices once more, IM has heard.

 

The announcement of a new strategy for the subsidisation of EVs was made in the last week of 2016, ending months of uncertainty as to what financial support would be made available to carmakers and prompting speculation as to what this might mean for lithium, a key mineral in the manufacture of lithium-ion (Li-ion) batteries, used in the cars.

 

A previous government aid programme for EVs contributed to a spike in lithium prices on the Chinese spot market between Q3 2015 and Q2 2016, when the value of domestically-traded lithium carbonate and hydroxide rose to three-four times their original levels, as EV production boomed.

But a government clampdown on so-called "subsidy cheating" in mid-2016 saw an investigation launched and a delay in the awarding of subsidies.

 

A report into the defrauding of the previous regime was released last September, with details on five of the companies involved made public. One had its subsidies cancelled and its CEO arrested, while punishments for the remaining four were announced in December.

 

The new policy brings seven major changes to the previous one in terms of eligibility for the grant. These include the introduction of an energy consumption requirement; an increased duration requirement; the application of a new national standard on energy density threshold; an increased safety requirement (where accidents will reduce eligibility or disqualify models from the subsidy); the establishment of a random inspection system; the implementation of stricter timeframes to reach the market; and a clamp down on claims where vehicles do not reach the road (non-user bought EVs must have 30,000km on the clock before applying for the subsidy, to prevent companies taking advantage by selling cars to their own distributors, which remain unused).

 

The way in which subsidies are released will also be changed, with finance being made available after the sales of vehicles rather than before. At the beginning of each year, producers will have to submit the previous year’s assets report, providing sales numbers, invoices, product specifications and vehicle registration information to the provincial government and then to the central ministries. The Ministry of Industry and Information Technology will then issue a report to the Ministry of Finance which will release the subsidy, assuming everything is in order. The levels of subsidies to be awarded are lower than before. 

 

Subsidies are down by 20% on passenger vehicles and by 40-70% on buses, depending on size. Buses have been hit particularly hard on the basis that this was where the majority of the "cheating" occurred.

 

There has been speculation that the delayed awarding of subsidies, which in effect may be up to two years after vehicle sales, may pose cash flow problems for smaller producers, driving them out of the market.

 

Any additional subsidies given by local authorities cannot exceed 50% of the central government subsidy.

 

The primary aim of the policy remains to increase EV usage, with a target of 5m units on the road by 2020, up from an estimated 500,000 in 2016. The subsidy will be cancelled at this point, following a gradual phase out.

 

It is unclear when the effects of the new policy will be felt by the EV market. Sources have indicated January vehicle prices will be unchanged, with a possible change in February, once local authorities have confirmed their individual subsidy levels.

 

Effects on lithium

 

Source materials, including lithium, will likely benefit from the renewed government support of the industry.

 

Even though subsidies are now lower, the promise of continued state aid in the short term will provide the EV industry with a boost, and consequently its raw material suppliers.

 

However, plans by lithium carbonate producers to expand or build new capacities in the wake of the 2016 price spike could likely temper any rise in price, making it unlikely that the heights seen in 2016 will be revisited.

 

Even so, lithium producers are optimistic about the effects on price of the new policy. One manufacturer of lithium carbonate told IM that at the very least it will prevent prices falling any further because, as companies set targets for EV sales, demand for related source material will increase accordingly. This will help the whole EV supply chain, he said.

 

Before the policy was confirmed, not only battery producers, but also lithium producers were hesitant in making production decisions, he added.

Source - http://www.indmin.com/

 

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