Battery stocks chilled by frosty EV demand, falling lithium prices

The secondary battery stocks that led the Korean markets in the summer have lost their heat partly due to cooling EV demand and plunging lithium prices.

The Kosdaq-listed cathode producer EcoPro lost nearly 30 percent of its market capitalization in September. [ECOPRO]

The secondary battery stocks that led the Korean markets in the summer have lost their heat partly due to cooling EV demand and plunging lithium prices.

The stock price of EcoPro, a Kosdaq-listed cathode manufacturer that spearheaded the battery rally in July, closed at 904,000 won ($681) per share on Thursday, which is down 41.3 percent from its intraday peak on July 26.

It has finished lower in eight of the last 10 trading sessions, losing 28.1 percent in September.

EcoPro was dubbed “emperor stock” for surpassing the 1 million won mark on July 18. At the pinnacle of the battery frenzy, it reached 1.54 million won during trading hours on July 26 — nearly 14 times the price at the beginning of the year.

Other leading battery-related stocks mirrored EcoPro.

EcoPro’s battery materials subsidiary EcoPro BM has closed lower in 10 of the last 13 trading sessions, dropping 17.3 percent over the period.

Posco Holdings and Posco Future M listed in the Kospi bourse slipped 4.5 percent and 10.7 percent, respectively, in September.

EcoPro shares rallied throughout the year until August. [KOREA EXCHANGE]

EcoPro BM, Posco Holdings and Posco Future M have reached their all-time high price during trading hours in July along with EcoPro but retreated 51.2 percent, 27.6 percent and 42.2 percent respectively as of Thursday.

LG Energy Solution, Samsung SDI and LG Chem also shed around 20 percent between July 26 and Thursday.

Experts say the battery craze in the Korean markets waned from concerns of a slump in battery demand and declining prices of lithium hydroxide, an integral compound in secondary battery production.

“Stock prices of carmakers and battery cell companies have been sluggish since August on woes over weak EV demand,” said Jeong Myeong-ji, senior analyst at Samsung Securities.

“Battery materials producers like EcoPro managed to maintain its prices on the news of [EcoPro’s] inclusion in the Morgan Stanley Capital International (MSCI) market index but have lost their footing in the wake of new leads.”

EcoPro made the MSCI index on Aug. 11.

Falling lithium hydroxide prices added downward pressure to the battery sector, dragging down the average selling price of battery materials.

In other words, battery manufacturers are at a loss because they have to sell their products at a lower cost that takes the fallen lithium price into account.

The price of lithium hydroxide per ton shed 33 percent to $28,800 between July 31 and Wednesday, according to the London Metal Exchange.

EcoPro's stock price tumbles below 1 million won ($754) to close at 985,000 won on July 27. [NEWS1]

“Tumbling average selling price leads to a dip in sales and profitability and clouds the forecast on cathode producers’ earnings in the latter half of the year,” KB Securities analyst Kang Seong-jin said.

“Market uncertainties surrounding the Inflation Reduction Act may increase ahead of the U.S. presidential election and the EV demand is likely to decrease further due to high interest rates,” said SK Securities’ Cho Jun-Ki.

These factors encouraged individual investors to take short positions against the sector and rake in inverse ETF products.

Retail investors bought a net 47.6 billion won of KBSTAR Secondary Cell TOP10 Inverse ETF in three trading sessions after it was listed by KB Asset Management on Tuesday.

The inverse ETF delivers positive returns from declines in the value of a battery benchmark consisting of 10 major battery-related companies such as LG Energy Solution, Samsung SDI, Posco Holdings, Posco Future M, EcoPro and EcoPro BM.

KBSTAR Secondary Cell TOP10 Inverse is the first ETF in the local markets that bet on a specific sector’s decline.

At the other end, retail investors bought in a net 931 million won of KBSTAR Secondary Cell TOP10, an ETF that outright tracks these companies, during the three-day period.

Some experts say this may be the opportune moment to enter the secondary battery market.

NH Investment & Securities raised its rating on EcoPro and Posco Future M to “buy” from “hold” on Tuesday, citing a possible rally following the price correction.

BY AHN HYO-SEONG, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]