Emerging competition will result in stable prices

Gina Roos -- Purchasing, 2/17/2005

Despite rising costs for raw materials used in batteries (such as silver and cobalt), buyers can expect flat to falling prices and short leadtimes for lithium and nickel-based rechargeable batteries through 2005 as manufacturers compete with emerging Chinese battery makers.

"Our customers that have contracts in place aren't willing to pay more so we are tightening our belt to maintain the same price and profitability," says Hameed Chaudhury, product marketing manager for Sony Electronics, in explaining why pricing has stayed flat even though the cost of cobalt tripled from $10/lb in 2002 to about $30/lb in 2004.

Besides belt tightening by suppliers, prices will be weak because Chinese battery manufacturers have entered the North American and European markets with very aggressive pricing, says C.R. Malavika, research analyst for Frost & Sullivan.

An example: Chinese manufacturer BYD, which has about 80% market share of lithium-ion cells in China and is the world's third biggest supplier of lithium-ion (Li-on) cells. BYD, according to one major Japanese battery manufacturer, has gradually improved the quality for nickel-metal-hydride (NiMH) and nickel-cadmium (NiCd) products in recent years. As a result, major equipment manufacturers are now more comfortable using BYD cells in portable products.

To better compete with Chinese battery manufacturers, many Li-ion cell and battery pack companies are looking into different chemical formulas that will reduce the amount of cobalt needed in cells. They are also moving their manufacturing operations into China to take advantage of low-cost labor.

Because of stiff competition and soft prices, the rechargeable battery market will only post modest sales growth in 2005 despite strong demand. The market for lithium rechargeables will rise from $3.7 billion in 2004 to $3.8 billion in 2005, says The Darnell Group.

And, depending on cell phone and notebook computer demand next year, there is the potential for an oversupply situation in 2005, which may result in additional downward price pressure.

Battery growth will be driven by increased shipments of portable equipment, including cell phones and laptop computers. Lithium cells will see the greatest growth, as nearly 100% percent of all cell phones and 90% or more of all laptop computers use a lithium-based rechargeable battery.

Li-ion is still the best option for most equipment because it offers the highest energy density and lightest weight, says Sara Bradford, industry manager for the power supplies and batteries group of Frost & Sullivan. (The average cell voltage for Li-ion is 3.7 volts compared with 1.2 volts for NiMH). However, Li-ion cells are more expensive. A six-cell lithium-ion battery pack for computer applications costs about $12 more than a NiMH version.

Li-polymer cells are even more expensive than Li-ion batteries, but their pricing is falling at a lower rate. Pricing for Li-ion batteries dropped to $3.50 per cell in 2003, from $5 to $6 in 2000, compared with $5 per cell for li-polymer in 2003, compared with $7 to $10 in 2000, Bradford says.

In combination with issues related to charging the polymer and problems with pouches swelling or overheating, that higher price is limiting demand. But lithium-polymer cells are being used in cell phones because their prismatic design is more popular than cylindrical design of batteries in phones. In addition, Li-polymer can be made into form factors that are as thin as 2.9 mm, compared with a 4 mm limitation for Li-ion.

Despite the great demand for Li-based batteries for portable applications, there is renewed interest in rechargeable NiMH batteries for notebook computers—mostly for value-based lines that are used as desktop PC replacements.

It's a different story for the NiCd battery market. NiCd cell demand is weakening although the market will still have 3% to 4% growth in 2004, says Malavika. Asian suppliers are still producing a significant amount of NiCad batteries for larger high drain industrial applications such as power tools and cordless phones, although NiMH batteries are slowly creeping into those applications. The replacement rate is slow because NiMH cells cost about 20% more than NiCd cells.

However, several leading battery manufacturers are looking into developing Li-ion batteries as an alternative specifically for high-drain power tool applications.

Recycling and disposable issues may also slow NiCd battery sales. Although it doesn't directly impact batteries, the European Union is driving the restriction of hazardous materials of electronic components through its Restriction of Hazardous Substances (RoHS) directive.

Currently there is no NiCd battery ban proposed, but the European Portable Battery Assn. (EPBA), which represents the interest of battery manufacturers in Europe, is working with the European Union to develop a new battery directive.