April 2, 2020: Getting back to work in China has mitigated major risks to lithium battery supply, analysts with the consultancy group Wood Mackenzie reported on April 1.
Early estimates by the group indicated a 10% reduction in lithium battery supply because of China’s work restrictions — but with Japan and South Korea ramping up their own production and the Chinese re-opening plants quickly, supply has been maintained.
“As of March, restrictions [in China] have been lifted and production facilities are now at 60%-70% of pre-virus levels,” said senior research analyst Le Xu. “As such, the major risks to battery supply have been somewhat mitigated. However, mitigation efforts will likely see the battery supply chain accelerate. This will have far-reaching implications, not just for energy storage but for the global economy too.”
WoodMac says a 2020 recession is imminent, and will put more pressure on demand, with consumers less likely to spend on high-cost items such as residential energy storage.
The same could apply to large-scale projects.
“Financiers’ appetite for this type of asset is already being reduced,” said Xu. “Final project investment decisions will be pushed further out to when market conditions make the risk-return ratio for this asset class more palatable.”
However there was one sign of optimism.
“Interest rates are being slashed to record low levels,” said Rory McCarthy, Wood Mackenzie principal analyst. “This may be a silver lining for financially borderline projects, with lower costs of capital available to help tip them into the investable category.
“This will be of particular interest to merchant projects seeking finance that typically rely on high-cost equity capital.”