After three years of plummeting prices and chronic industry overcapacity, there appeared to be nothing but more bad news in store for Chinese manufacturers of LiPF6, a key raw material in the production of lithium-ion (Li-ion) batteries. However, according to China market experts CCM, there are suddenly many reasons to be optimistic about China’s LiPF6 market.
The Chinese LiPF6 industry has had a short but turbulent history. Due to the high production costs and advanced technology needed to produce LiPF6, Chinese firms only began to enter the market en masse as late as 2011. At that time, the market was effectively monopolized by a small group of Japanese companies, including Kanto Denka Kogyo Co., Ltd., Stella Chemifa Corporation and Morita Chemical Industries Co., Ltd., which were then enjoying profit margins of up to 70%.
Keen to grab their share of this lucrative market, Chinese enterprises such as Do-Fluoride Chemicals Co., Ltd., Jiangsu Jiujiujiu Technology Co., Ltd. and Guangzhou Tinci Materials Technology Co., Ltd. started to set up their own LiPF6 projects, and through the introduction of external technologies and their own independent R&D, they succeeded in breaking up the Japanese monopoly.
However, spurred on by this initial success, these Chinese firms began aggressively to expand their production capacities – as of December 2013, Do-Fluoride’s production capacity of 2,200t/a is the largest of any LiPF6 manufacturer worldwide.
Problems soon emerged, as growth in demand was far too slow to keep pace with the rocketing production capacity. LiPF6 prices began to fall from their 2011 levels of USD48,786/t (RMB300,000/t), and they kept on falling. Currently, the average price of LiPF6 is just USD14,636/t (RMB90,000/t), less than one third of the average price just three years ago. This has hurt the profit margins of LiPF6 manufacturers badly, and several smaller factories in Japan have been forced to cease production.
On the surface, the situation still appears to be challenging for the LiPF6 industry. According to Xu Jinfu, chairman of Tinci, the global production capacity of LiPF6 totals around 12,000 t/a at present, which, if completely converted into output and used to produce Li-ion battery electrolyte, would produce 80,000 t/a of electrolyte. On the other hand, the overall market capacity for Li-ion battery electrolyte is just 70,000 t/a at present. Overcapacity is therefore still a major problem, and this is reflected in Tinci’s latest results, which reported profit falls for its Li-ion battery material business in H1 2014.
Nevertheless, CCM believes that there are several reasons why we should feel very optimistic about the short- and long-term future of the LiPF6 market in China. Firstly, although Tinci’s Li-ion battery material business saw profits fall in H1 2014, its sales volume increased by an impressive 70% compared to the same period last year. This sudden surge in demand suggests that the industry’s fortunes are already beginning to change.
What is particularly promising about this upturn in demand is that it is primarily coming from two emerging industries that have huge potential long-term – the alternative energy automobile and energy storage industries. The alternative energy automobile market especially is already having a great effect on demand for LiPF6. The industry is growing rapidly – China is predicted to manufacture 55,000 alternative energy automobiles in 2014, and this is expected to increase to 100,000 in 2015. If the industry develops as predicted, it will already account for 9% of global demand for Li-ion battery electrolyte in 2015.
The energy storage market has possibly even greater long-term potential, although this potential is hard to quantify. One promising possible application of Li-ion batteries in the energy storage industry is in mobile base stations, so we can take this as an example. If all mobile base stations in China were to use Li-ion batteries to store energy, demand for Li-ion battery electrolyte would increase by approximately 20,000-40,000 tons. Considering that global demand for Li-ion battery electrolyte is currently only around 60,000 tons, it is clear that the development of this industry could transform the market for LiPF6.
Looking more short-term, there are also reasons to be optimistic that Chinese LiPF6 manufacturers may start to see their profit margins stabilize, or even slightly increase next year. Given the recent overcapacity problems, no expansions of production capacity will be completed before the end of 2015. Any increase in demand for LiPF6 in 2015 should therefore directly benefit the manufacturers.
Moreover, even if the supply/demand situation does not stabilize as expected, it is worth bearing in mind that production costs for Chinese manufacturers remain significantly lower than the costs of their overseas competitors. Although LiPF6 prices have declined in recent years, the current prices are still acceptable to many Chinese enterprises. By contrast, as already noted, several small-scale Japanese manufacturers have already had to quit the market. Therefore, if prices do continue to drop slightly next year, most Chinese manufacturers should be able to deal with the pressure on profit margins better than the international competition.
It has been a tough few years for China’s LiPF6 companies, but they have struggled on impressively and look like they have plenty of juice left in the tank. It is possible next year that the trend toward declining profit margins will continue temporarily, but CCM expects rapidly increasing demand from the energy storage and, especially, the alternative energy automobile industries to decisively shift the balance of supply and demand in favor of the manufacturers. When this happens, these companies will finally be rewarded for their persistence.
This article was provided by CCM, a leading provider of data and business intelligence on China’s chemicals market. CCM has launched China Li-ion Battery E-News, a new e-journal dedicated to analyzing all the latest news and trends in China’s Li-ion battery industry. For more information on CCM and China Li-ion Battery E-News, please visit www.cnchemicals.com or contact firstname.lastname@example.org
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