Guotai Junan: the persistence of the high price of lithium is quite solid.

Summary of the views of King Nonferrous team:

Supply side: the market was generally worried that mica might become a supply-side disturbance this year, but through visits to Xinyu, Yichun, Nanchang and other mining enterprises, we found that the increment and production progress of mica this year were not as expected by the market, and the supply side is still relatively rigid.

Demand side: from the point of view of acceptance, after the price breaks through 400000, the transmission is still smooth, the rush for goods continues, and the acceptance of the terminal has been gradually accepted from trying to struggle a year ago. At present, the inventory of downstream cathode material enterprises is only 3 weeks at most, which is more tense than before the festival, and the operating rate of the current processing enterprises is still in the recovery stage, and the mine end is still tight.

Lithium price: from a comprehensive point of view of supply and demand, the high price that the market has been worried about suppresses demand and whether the price can rise again, or is no longer the core issue. We think the persistence of the high price of lithium is quite solid.

Plate valuation and performance-to-price ratio: according to the average price of 350000 yuan ya calculation, part of the self-financing rate of companies, 22 years of dynamic PE has fallen to about 8, even if the industry is valued in accordance with the cycle, it is still undervalued. And this year and next year prices are stable and high or further higher is almost a foregone conclusion, China Mineral Resources, Tianqi Lithium Industry, Yongxing Materials and other companies with high self-supply rate or marginal improvement may be further highlighted.

We believe that the current point of time, lithium price, lithium price persistence and valuation are no longer the core problems, even from the perspective of valuation repair, are worthy of attention.

Main content

1. Recent transactions in the spot market

1. Recent market situation

Overall, lithium prices have been rising since mid-November 2021. Even in the last week after the Spring Festival, lithium prices are still in a trend of "not slowing down the rise".

At this time, the price of lithium doubled, not 80, 000 to 180000 yuan at that time, but 200000 to 400000 yuan. In fact, the price of battery-grade lithium carbonate has reached 190000 yuan per ton by the end of September 2021. At that time, the market actually began to worry about the price trend, but after nearly half a year, even if the Black Swan incident occurred at the beginning of the fourth quarter of 2021, the impact of power cuts on the cathode plant was actually greater than that of the lithium supply enterprises. and lithium salt-cathode materials this link is a direct impact on lithium price changes, but prices remain stable, and achieved the third rise in November. It has risen from 190000 yuan to 420000 yuan per ton so far.

This spot price not only exceeded the market's previous cognition, but also exceeded our own expectations. But it also makes us think: if objective reality is constantly breaking our inherent perceptions, should we really adjust our valuation of the "inherent perceptions" given by the plate?

two。 Recent lithium price

Industrial grade lithium carbonate: the transaction price is 410000 yuan / ton, 20, 000 yuan / ton higher than last week;

Battery-grade lithium carbonate and quasi-electric carbon: the transaction price is about 420000 yuan / ton, up 20, 000 yuan / ton from last week, and 450000 yuan / ton from some manufacturers; the order price of large factories in February is 39-400000 yuan / ton, up 60, 000 yuan / ton compared with the long unit price in January.

Battery-grade lithium hydroxide: the transaction price is more than 360000 yuan / ton, up 20, 000 yuan / ton compared with last week. At this stage, lithium hydroxide is basically higher than lithium carbonate.

3. Recent spot market sentiment

We have had a very frequent communication with the upstream and downstream recently and learned that even at the current price of 400000 yuan / ton, the purchases in the middle and lower reaches still try their best to get the goods.

On the supply side, from the fourth quarter to the present, due to the reduction in production in winter in Qinghai, the industrial carbon supply of the salt lake system has been reduced by about 40% compared with the previous year. In the upward trend, on the basis of the reduction in supply, manufacturers have the idea of further raising prices, and the willingness to ship goods is weaker than in summer. 80% of the cash that can be circulated on the market is lithium carbonate from Qinghai, so the above reasons have a great tightening on supply. In addition to the winter impact, large factories in Jiangxi and Sichuan in December and January have carried out maintenance on the impact of subsequent monthly production. Lithium carbonate production decreased by 8% month-on-month in January, and lithium hydroxide production decreased by about 6% month-on-month. Affected by the Spring Festival holiday in February, the supply will not increase.

On the demand side, according to the newly announced January output of some cathode materials, the output of lithium iron phosphate, ternary materials, and lithium cobalt is basically the same as the month-on-month ratio. For the same reason of supply, the output forecast for February is slightly lower than the previous month, but a balance will not cause obvious disturbance to the supply and demand pattern.

4. Inventory level

At present, the lithium salt storage in the hands of industry cathode material manufacturers exists for about 2-3 weeks, and the inventory of small and medium-sized factories is even lower, even less than a week. The manufacturers in the middle and lower reaches are still very active in the reserve of raw materials, especially paying high attention to the resources at the mine end.

Most upstream manufacturers basically only have turnover inventory, and manufacturers in Qinghai have some inventory because of the relatively independent sales rhythm, but this kind of inventory is controlled by the manufacturers themselves, and we do not think there is a large invisible inventory.

Overall, prices rose at a much slower pace last week than before, or stagnant price changes caused by a dearth of transactions. At present, spot prices have broken through the all-time high. According to the usual practice, the prices of next month's long orders are discussed between large factories near the end of the month, but it is understood that the signing of most October long orders has been postponed until after the National Day holiday. The wait-and-see attitude of both sides increased last week, with few transactions.

2. Reorganize the fundamentals of lithium industry.

1. Supply side:

In 2022, the global lithium supply will be about 770000 tons of LCE, with an increase of 215000 tons of LCE, supply. The increment of 215000 tons of LCE is roughly equivalent to the downstream 260GWH, which is very easy to be covered by the outbreak of demand.

The supply increment here is estimated under quite optimistic circumstances, based on the most optimistic situation of listed company exchanges and overseas company research, and the actual supply release is likely to be lower than expected. In particular, the composition of these supplies-- most of the increments of 215000 tons of LCE come from overseas increments, including some newly put into production projects such as Ganfeng and Cauchari-Olaroz Salt Lake of the American lithium industry. It is possible that the real volume and pace of this supply will not be as good as expected.

(for example, for overseas companies, 1Pilbara Minerals announced that "the progress of the mineral processing plant is low, the recruitment of workers in Western Australia is difficult, and the progress of production expansion is delayed, so the production and marketing guidelines for fiscal year 2022 have been revised." In the Q4 quarterly report in early February, compared with the Ngungaju factory climbing progress guidelines given in the Pilbara Q3 quarterly report, the full capacity of 18-220000 tons / year should be reached at the end of 2022Q2. However, the latest Q4 guidelines have been changed to "the Ngungaju plant is expected to reach 18-200000 tons of spodumene concentrate capacity from Q3". The wording has been loosened and there is a high probability that the full production time will be delayed. 2IGO's Q4 quarterly report, 2021.5 has begun trial production of the CPG2 plant, so far has not achieved full production, slower than the market consensus expected "climbing time of 6 months"). So there are many possibilities for overseas supply to fall short of expectations. )

two。 Demand side:

The global installed capacity of terminals will increase by 60% in 2022, and there will be a magnifying effect on terminal demand in the middle reaches. According to the survey, the scheduling plans of all battery factories and cathode material factories are basically doubled in 2022, while the supply of lithium resources at the front end in 2022 is only growing at a rate of 39%, which is still tight relative to demand. In addition, traditional ceramics and wind power blades also have some demand for lithium consumption. While the terminal growth rate in 2023 is still about 40%, considering the amplification effect of the mid-stream link, the production scheduling plan is still considerable.

3. Inventory side:

From 2018 to the first half of 2020, the surplus in the lithium industry led to the accumulation of a large amount of inventory. From last year to the present, there are a large number of lithium salt and lithium concentrate stocks in the industry. The lithium concentrate inventory in China and Australia alone may be 13-140000 tons of LCE. By now, the inventory of lithium concentrates in the industry may have been digested by more than 50%.

After a large consumption of lithium ore stocks, the actual supply increment in 2022 must not be less than 215000 tons of LCE (some lithium salt plants may not be able to fill up due to raw material problems). Because in the balance sheet of supply and demand, the increase in supply assumes that the existing supply stock in the previous year remains unchanged, but in fact, in the supply stock in 2020, the inventory has been reduced by more than half, then the actual supply increment must be less than 215000 tons of LCE, and it is estimated that the real increment is only 14-150000 tons LCE.

4. Price persistence:

To sum up, the persistence of high prices has a solid logical support. Many people compare the price increase of lithium by 2016 or 2017 to worry about whether lithium will have the same fate. But I think there is a core difference between supply and demand this time, which is that there is a mismatch between supply and demand in 2016 / 2017, and the supply bayonet is on the smelting side. As for the mismatch between supply and demand in 2021-2023, of course, we are strict in 2023, and there is a good chance that lithium will still be in short supply in 2024. This time the supply bayonet is on the resource side. In fact, we can also see the specific performance, that is, the distribution and circulation of profits. So this suggests that the release cycle of new supply will be much lower than that of the previous round of supply release. That is, the cycle from the construction of a smelter to commissioning: one year. But mining, from exploration to production, ranges from 2-3 years to 3-5 years. Therefore, there is no need to worry about whether supply will increase by leaps and bounds within half a year, leading to a rapid reversal of the pattern of supply falling short of demand.

5. The acceptance of lithium price by downstream car companies

With regard to this question, let's take a look at it separately.

(1) how much does the cost of car companies increase? According to the price of the website, the average price of battery-grade lithium carbonate including tax is 130000 yuan / ton. In fact, it is not as high as many people think. In 2022, suppose the lithium price center purchased by car companies is 350000 yuan / ton, which is about an increase of 200000 yuan / ton lithium purchase price. The bicycle is charged with 55 degrees, corresponding to the increase of lithium price by 100000 yuan per ton, the cost increases by 3000 yuan per car. That means that the lithium price purchased by car companies in 2022 is 350000 yuan per ton, and the lithium cost is increased by 6000 yuan per vehicle (but whether the cost of car companies is really 350000 yuan per ton lithium price may also have to be discounted). The cost pressure on car companies brought by the real rise in lithium prices is not as great as imagined.

(2) can car companies withstand the pressure of rising lithium prices? Car companies apportion and digest the upstream costs and downstream prices. In terms of cost, new energy car companies can reduce costs through some other links, such as reducing some costs by increasing the performance of electronically controlled products, and the auto parts industry's annual decline of 3% for the whole car factory, and increasing the mixing ratio-for example, I have 18 degrees of electricity on my bike (so the cost is reduced by 2x3), and so on, to realize the digestion of lithium raw materials for the increase in cost. The advantage of the price increase, to C is that the price increase looks soft and not stiff. For example, there were 24 interest-free installments before, and now it is inevitable, such as adding the price of new models and so on. Through the above two points, we can see that car companies can and are taking some specific measures to alleviate a large part of the pressure of rising costs.

Most importantly, the most important goal of new energy car companies is to seize the market, and profit is the icing on the cake rather than the only purpose for car companies. From this point of view, car companies will also have a stronger subjective digestion of rising lithium prices.

3. Lithium plate valuation and target recommendation

1. Thoughts on the callback of Lithium Plate

In the past two months, the correction of the plate is relatively large, with a pullback of about 50% compared with the previous one. Spot lithium prices and plate trends have deviated for quite a long time. For the lithium plate, the main reason is the rapid rise in lithium prices after breaking through the historical prices. for some investors who are used to cyclical products, it is inevitable that they have some worries about future prices, which are deeply deduced to the worries about demand. the valuation of the plate is given a switch from a growth high valuation to a cyclical low valuation.

However, we believe that the current plate logic is: due to the rigid supply shortage caused by the rapid development of industry demand, it is reflected that the lithium price continues to hit new highs and the long-term persistence of the price in the high shock upward, as well as the downward extension of high prices, returning to the high profit growth and long-term nature of lithium companies, so as to reverse the general perception of lithium "traditional periodic products" in the industry. Thus the market to revise the plate to give a higher valuation space. Not to mention, even if we give lithium to the traditional non-ferrous cycle, its valuation has already reflected the performance-to-price ratio.

Of course, the loss of the "lithium price rise, corresponding to the stock price rise" this very clear anchor to link the stock price, for the follow-up plate, are there any indicators that can produce linkage? We think that some indicators such as: 1) the spot lithium price has stepped out of a plateau at a high level, dispelling the worry of rising and falling sharply. 2) the price increase of the terminal is passed on and the demand is not suppressed, which is essentially a manifestation of continuity; 3) Lithium companies have realized their performance-although lithium prices have risen for more than half a year, there are only a handful of lithium companies whose Q4 performance has exceeded expectations. Of course, this is caused by a variety of objective reasons, but the expectations of the market for the plate are placed here, so naturally there are expectations for the performance of the company. Of course, now very clear anchor is indeed more difficult to find, but on the whole, there are still traces to follow.

two。 Key target

The higher the self-sufficiency rate of resources, the more they can enjoy the performance dividends brought by persistently high prices, such as Tianqi Lithium Industry, Yongxing Materials and so on. And the recent acquisition of Bikita China Mineral Resources, 22 years of performance will be significantly improved.

For mining lithium companies, if the lithium price is 350000 in 2022 and continues, after more than two months of wear and tear, these lithium companies have a pe of 10 times or less, which is already very cost-effective.