Summary: The recovery of new energy vehicle demand has boosted demand for lithium batteries. As copper foil, a key auxiliary material for lithium batteries, is in an upgrade and iteration period, coupled with rising copper prices, copper foil may face supply-demand imbalance this year.
According to the latest data released by the China Association of Automobile Manufacturers, domestic new energy vehicle sales continued to pick up in November 2020, with monthly sales reaching 200,000 vehicles, a stable increase for five consecutive months. The recovery of new energy vehicle demand has driven up demand for lithium batteries. Because copper foil, a key auxiliary material for lithium batteries, is in an upgrade and iteration cycle, coupled with rising copper prices, copper foil may see supply-demand imbalance this year.
Copper foil prices have risen noticeably. The rapid rise in copper foil prices was affected by copper price fluctuations. Since the second half of 2020, as market demand gradually recovered, copper inventories kept declining, leading to sustained copper price increases.
Data show that as of the end of December 2020, copper prices on the London Metal Exchange and the Shanghai Futures Exchange were USD 7,939/ton and RMB 59,300/ton respectively, up 12.2% and 11.9% month-on-month, and up 27.9% and 20.4% from the 2020 lows.
The continuous rise in copper prices has caused strong wait-and-see sentiment among downstream enterprises, with poor order signing and shipments. As demand in the new energy vehicle market begins to show, the supply-demand imbalance in the copper foil market is intensifying, and prices have risen accordingly.
According to data from market service provider Bai Chuan Ying Fu, in December 2020, the price of 6-micron copper foil rose to 76 yuan/kg, up 7.8% from the low in March of that year; the price of 8-micron copper foil was 94 yuan/kg, up 5% from the year's low, showing a clear uptrend.
Soochow Securities analysis said that the new energy vehicle market is expected to continue recovering this year, with strong demand for copper foil. However, there are no signs of copper and copper foil prices weakening, and domestic copper foil producers are expanding production relatively slowly, so copper foil prices may maintain an upward trend.
New product capacity still needs ramp-up. Based on copper foil thickness and battery material differences, using a lithium battery copper foil consumption of 700-900 tons/GWh, copper foil accounts for about 5%-8% of lithium battery cost.
Although the cost share is relatively low, as a key auxiliary material for lithium batteries, copper foil acts as a carrier and conductor for the negative electrode active material. This makes lithium battery manufacturers pay special attention to it.
In addition to the impact of copper price rises mentioned above, another factor in the recent supply-demand imbalance in the copper foil market is that products are in an upgrade and iteration period, and insufficient capacity for high-end products has caused a gap in market transition.
Chen Yubi, executive vice president of Nuode, said that in recent years, due to the need to improve battery performance and reduce costs, power battery companies' demand for copper foil has shifted from 12 microns to 6 microns, and leading companies have even begun to trial 4-5 micron products.
Soochow Securities pointed out that since 2019, the penetration rate of 6-micron products has continued to increase, and copper foil manufacturers have also accelerated the upgrading of new product lines. However, in the production process, the thinner the product, the lower the load rate, yield rate and operating rate, and the higher the process cost. At the same time, the commissioning cycle for new production lines is long, and the short-term mismatch between product supply and demand leads to periodic price fluctuations in copper foil.
Gap appears, capacity expansion accelerates. As the market demand gap emerges, copper foil manufacturers are accelerating expansion.
In November 2020, Longdian Huaxin publicly announced that it would build a regional headquarters, R&D center and production base with an annual output of 50,000 tons of 6-8 micron copper foil in Lishui Development Zone, Nanjing, with a total project investment of 10 billion yuan and annual output value of up to 7 billion yuan. It will further expand capacity later as needed. According to incomplete statistics by the reporter, this is already the 9th copper foil manufacturer to announce capacity expansion since 2020.
Although the copper foil market investment is hot, it will take time for a large amount of capacity to actually come into operation.
According to Soochow Securities, unlike other lithium battery materials, copper foil has a longer capacity expansion cycle, generally about 2-3 years. Combined with slow capacity ramp-up, it will take time to truly achieve full production.
In this context, the market worries that the copper foil supply gap may further widen this year.
Guosen Securities analysis believes that the current copper foil price increase was amplified by the demand mismatch caused by the epidemic. With copper foil producers actively expanding production, the market supply-demand tension is expected to ease in the first quarter of this year.