With the artificial intelligence (AI) data center boom driving a surge in demand for energy storage systems (ESS), prices of lithium, a key material for ESS batteries, are climbing sharply. Domestic battery material companies expect profitability to improve as the value of lithium inventories purchased cheaply in advance rises.
According to the Korea Mine Rehabilitation and Mineral Resources Corporation (KOMIR) Korea Resources Information Service (KOMIS) on the 18th, the lithium carbonate price stood at 95 yuan (about 20,000 won) per kg as of the previous day, the highest level in 18 months since June 18 of last year (93.5 yuan). Compared with June this year, when lithium prices fell to the 57-yuan range, they nearly doubled in six months.
Behind the jump in lithium prices is a surge in ESS battery demand following electric vehicle (EV) batteries. ESS stores electricity and supplies it when needed. It is a massive "auxiliary battery" used for grid stabilization and boosting the efficiency of renewable energy. Market research firm SNE projected that U.S. ESS demand will grow from 59 GWh in 2025 to 142 GWh in 2030.
In the ESS market, lithium iron phosphate (LFP) batteries, which have lower fire risk and are price-competitive, are mainly used. In China's ESS market, LFP accounts for more than 99%, and it nears 90% in Europe, establishing LFP batteries as the ESS standard worldwide. One of the key materials in LFP batteries is lithium.
Cathode material corporations such as POSCO FUTURE M, EcoPro and L&F see profitability diverge depending on lithium price fluctuations. That is because there is a time lag between purchasing lithium and selling it as cathode materials. If they buy lithium when prices are low and sell products when lithium prices have risen, they book inventory valuation gains.
Conversely, when lithium prices fall, the value of inventories secured in advance declines, resulting in inventory valuation losses. POSCO FUTURE M disclosed in its 2023 business report that it set aside a 74.2 billion won inventory valuation provision as the assessed value of minerals it held fell. It added that excluding the factor of the inventory valuation provision at the time, it could have posted 65.2 billion won in operating profit in the energy materials institutional sector.
The scale of lithium inventories at each corporation is unknown, but because they rely entirely on imports, stockpiles are not sufficient. The government's stockpiling target this year is 100 days, but the average stockpile is about 68.5 days. One day's worth refers to the amount of rare metals used by Korea's industry in a single day.
When lithium prices rise, battery cell corporations such as LG Energy Solution, Samsung SDI and SK On that purchase cathode materials face higher costs in the short term. Although it varies by contract terms, it is widely known that many are structured so that cathode sales prices increase when lithium prices rise.
Many expect lithium prices to keep rising for the time being. Sixty-five percent of the world's lithium is refined in China, and the Chinese government is artificially managing supply. In August, the Chinese government halted production at CATL's lithium mine in Jiangxi province. The view is that the government did not extend mining permits to crack down on lithium overproduction.
Jeon U-je, an analyst at KB Securities, said, "Lithium prices have risen sharply due to the rapid growth of the ESS market and the Chinese government's intent to curb oversupply. If the Chinese government continues to crack down on overproduction and cutthroat competition, it could negatively affect the supply-demand outlook and push lithium prices even higher."