China is experiencing its worst wave of the pandemic in two years, grinding logistical operations and consumption to a halt.

Cathode material producers have slightly less demand due to high raw material prices and fewer orders from power battery manufacturers.

EV makers face hurdles

A few automakers in China had to reduce or halt production, strapped by transport challenges and lacking in auto parts.

One of China’s biggest new energy vehicle manufacturers, Nio, suspended production because of broken supply chains for auto parts, it announced on April 9.

Market talk suggested a major global EV maker in China halted production from March 28, but had not resumed, though a spokesperson for the firm told S&P Global Commodity Insights that he had no information on any such suspension of output.

In the meantime, Faw-Volkswagen Automotive Co., Ltd. suspended production at its plants in Changchun and Shanghai, Shanghai Securities News reported in early April. S&P Global was unable to reach the company by phone.

Vehicle production in Shanghai and Jilin province, which were particularly affected by the new wave of pandemic, made up 10.7% and 9.1% of the country’s total production, respectively, according to S&P Global’s calculations.

This would reduce the demand for power batteries and related raw materials in April as car makers suspend production lines, the sources said.

The likes of Nio are significant customers of Contemporary Amperex Technology Co. Ltd. (CATL).

Lockdowns spell trouble

And battery makers and refiners have also had their logistics troubles, with most of East China under some form of lockdown measures so far.

A resurgence of COVID-19 in Shanghai has been spilling into neighboring cities, which have also been in lockdown since late March.

China’s strict lockdown measures have disrupted its supply chains, as transport remains curtailed and workers are in lockdown. In some reports, strict lockdown measures in China, as the country implements a zero-COVID policy, could be extended through May.

Ningde city in China’s Fujian province, where CATL is located, tightened its control measures in mid-April to curb the spread of the coronavirus.

CATL is doing whatever it can to maintain market supply and minimize the impact, state-owned Fujian Daily reported.

A salt producer in northeastern Jilin province said that although production was continuing as normal, transportation was a primary concern that had disrupted delivery schedules to customers.

Similarly, many traders said deals were hard to sign during this period because they could not ensure material deliveries.

High prices draw concerns

The explosive growth in China's EV industry sparked a scramble among suppliers to secure raw material, driving up prices of lithium and nickel.

When the price of lithium, nickel and metals skyrocketing were transferred to the downstream consumer, new energy vehicle manufacturers had to raise their vehicles price maintaining profit margins.

The dramatic spike in prices also raised concerns from the China Association of Automobile Manufacturers (CAAM) and government authorities.

Such unjustified price surges of power-battery raw materials will affect China's new energy vehicle industry at a time when it is striving for expansion and its subsidies were also cut as of Jan. 1, the CAAM said in early April.

Although 65% of domestic lithium resources depend on imports, CAAM said, it added that China's overall supply would not have major gaps as a crucial exporter of lithium chemicals, underpinning its appeal for "unreasonable price advances" of lithium products.

In March, China’s Ministry of Industry and Information Technology held talks asking about the lithium industry and the price increase of battery raw materials.