Recommendation logic
Lithium supply and demand from 2021 to 2025 is expected to gradually move towards a shortage, and the fundamentals of the medium-and long-term lithium bull market are strong. On the demand side, the global transformation of new energy drives lithium demand into a new growth cycle. Power and energy storage batteries will contribute to the main increase in demand, with CAGR of 58% and 32% respectively. We expect global lithium demand to increase from 430000 tons in 2021 to 1.5 million tons of LCE,CAGR37% in 2025. On the supply side, the short-term global supply is lower than expected. In the long run, the development of lithium resources is uncertain, and the supply response speed may be difficult to match the demand growth. We expect the global lithium supply to increase from 480000 tons in 2021 to 1.48 million tons of LCE,CAGR33%, in 2025, lagging behind the demand growth. To sum up, we estimate that global lithium supply and demand from 2021 to 2025 will be + 3.58, "4.03," 2.19, 2.59, and 42200 tons of LCE, respectively.
Under the judgment that the central lithium price remains high in the medium to long term, we believe that three structural logic are worth paying attention to:
Resources are the king, and the structural shortage of lithium concentrate is gradually becoming a trend, and we expect the price of lithium concentrate to accelerate upward. The strong downstream demand drives the expansion of lithium salt, while the supply response of the mine side is slow after the early capacity clearance, coupled with the epidemic situation dragging down the pace of production expansion, the supply bottleneck of the industrial chain is shifting from the middle reaches to the upper reaches. In this context, we expect that the bargaining power of the mining side is expected to increase, the price of lithium concentrate will accelerate, and it is expected to be transmitted to the middle reaches to drive a new round of lithium salt price increases, which will benefit enterprises with high resource self-sufficiency rate or potential for resource mergers and acquisitions.
Lithium resources with controllable supply risk will be strategically reassessed. China's lithium industry has a high degree of dependence on raw materials. According to our estimates, 74% of the raw materials of domestic lithium salt products come from Australia in 2020. Considering the rising risk of overseas resource supply and the gradual trend of closed-loop supporting of lithium industry chain in various countries, the lithium resources supplied to China will be more scarce. We believe that enterprises that distribute domestic lithium resources and overseas supply risk-controllable lithium resources will usher in a strategic reassessment.
The overseas ternary demand for high nickel has accelerated, and the upstream logic of lithium hydroxide has been strengthened. First, benefiting from policy stimulus and the recovery of the epidemic situation, the market for new energy vehicles in Europe and the United States has significantly accelerated, and overseas demand, mainly high-nickel ternary, will significantly boost the demand for hydrogen and lithium. Second, except for a few leaders, most lithium hydroxide manufacturers lack stable long-term cooperation raw material protection and sufficient lithium ore inventory, or will be restricted by raw materials to passively reduce the operating rate. Third, as of June 25, 2021, the premium rate of lithium hydrogen to electric carbon is only 9%, which is not enough to reflect the higher process barriers and quality requirements of lithium hydroxide. We believe that structural supply and demand tightening will strengthen the upstream logic of lithium hydroxide, and major suppliers of lithium hydroxide and enterprises with production expansion expectations and capabilities are expected to achieve both volume and price increases.
Risk
1) the global production and sales of new energy vehicles fell short of expectations; 2) the new supply of lithium exceeded expectations.
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