Go up! Why is "demon lithium" so ferocious?

"480000"

"too low, too low."

"490000"

"can't buy it, can't buy it."

This is the scene of lithium carbonate downstream enterprise buyers coming to the lithium salt company, but failed to make a counteroffer, which has been the case almost every day recently. As of March 8, the spot price of battery-grade lithium carbonate has broken through the 500000 yuan / ton mark, which may not have been expected by any downstream demand company at this time last year. No wonder some people can't help feeling that the "demon nickel" is not flat, and the "demon lithium" offensive continues to be ferocious. It is generally felt in the industry that the general trend of the attack of "demon lithium" has put some "suffocation" on the entire industrial chain.

The explosive growth of the new energy vehicle market in 2021 has led to a triple jump in the price of battery-grade lithium carbonate, one of the main raw materials for power batteries, according to state media reports.

From January to March in 2021, battery-grade lithium carbonate increased from 50,000 yuan / ton to 86000 yuan / ton; from August to November, it soared to 180000 yuan / ton; in December, it exceeded 200000 yuan / ton at the beginning of the month and rose to more than 270000 yuan / ton at the end of the month, an increase of more than 30 percent in the month and more than 400 percent in the same period last year.

At present, battery-grade lithium carbonate has further skyrocketed to more than 500000 yuan / ton, rising by about 85% in 2022. Of course, salt lakes and mineral resources are difficult to exploit and extract, and the cycle of production expansion is long, and the shortage of lithium products is part of the reason for the price increase, but the price performance is affected by multiple factors. This paper will explore some clues from the perspective of market and trade.

Auction mode, hot money influx, domestic passive price increase

From the perspective of overseas trade environment, September 14, 2021 was a dark night for the middle and lower reaches of lithium materials, as the price of the second spodumene auction conducted by Australia's main mine Pilbara on the BMX electronic platform was much higher than expected, with a final transaction price of US $2240 / ton. The first auction in July was $1250 a tonne. Taking into account shipping costs and reasonable profits of lithium salt manufacturers, the price of lithium ore processed into lithium carbonate in September was about 167000 yuan per ton, which was already higher than the domestic spot price of lithium carbonate at that time.

Then, at the third auction in October, the price was $2350 a tonne, up 4.91 per cent from the previous month. And the Altura mine, which can be sold on the market in 2022, has previously been included in Pilbara, and Pilbara plans to use all its lithium concentrate for online auction.

Not only the price increase on the overseas resource side exceeded the forecast at that time, but also the form of auction restricted the cost control of China's lithium salt enterprises, which mainly purchased raw materials, resulting in most of the profits taken away by Australian miners. Due to the lack of price control, the rise in overseas prices was transmitted to China, triggering the take-off of domestic lithium carbonate prices at that time.

In addition, several "massive" water releases in the United States last year released trillions of dollars of liquidity to the market. A large amount of hot money poured into various fields and the sharp depreciation of the US dollar led to a sharp rise in global commodity prices, which in turn indirectly contributed to the rise in the price of lithium resources to some extent.

Lack of pricing discourse in China

In the face of the unfavorable market environment overseas, China's industry appears to be very passive. Although China currently has the world's largest lithium battery capacity and high-quality lithium industry chain, there has been a lack of voice in the pricing of raw materials in the upper reaches of lithium resources. In this regard, the United States and Britain have taken the lead.

In May 2021, the Chicago Mercantile Exchange launched a lithium futures contract based on the price of CIF lithium hydroxide in China, Japan and South Korea. The London Metal Exchange launched the lithium futures contract in July of the same year, using the lithium hydroxide price announced by Fastmarkets for cash settlement.

The listing of lithium futures on international exchanges provides a price risk management tool for the lithium resources industry, and appears at a critical moment when many countries promote the goal of electrification, which is bound to have an impact on the global lithium market.

However, from a domestic point of view, there is no lithium futures, only in Wuxi stainless steel trading center launched lithium carbonate forward contract products, rather than the real futures contract.

Profiteering in two ways

Originally pinned on high hopes by enterprises in the middle and lower reaches of lithium resources, the forward sale and purchase agreement of lithium carbonate in Wuxi stainless steel trading center has "pushed" the price of lithium carbonate to soar together with the spot market since it was listed in July 2021.

On the supply side, with the release of the production capacity of lithium iron phosphate enterprises, the demand for lithium carbonate continues to increase, but lithium salt manufacturers are in short supply, resulting in an increase in the proportion of purchases from distributors by lithium iron phosphate enterprises, including the head of lithium iron phosphate enterprises. the mismatch between supply and demand promotes the price of lithium salt.

At the distribution end, some industry insiders said that some lithium salt dealers hoarded and sold goods, and some even took advantage of the prosperity of the industry to create market supply panic, capital speculation to drive up prices, but also contributed to the rise in the price of lithium carbonate. Since September last year, lithium carbonate has been in stock at almost "one price a day".

Let's take another look at Wuxi. On February 17 this year, for example, the sale and purchase agreement price of lithium carbonate in Wuxi stainless steel trading center reached 470 yuan / kg. In translation, the price of lithium carbonate was 470000 yuan / ton, up sharply from the quotation of 400000 yuan / ton on February 14. Some industry insiders pointed out that Wuxi electronic disk also has capital speculation factors. In this regard, some media sought confirmation from an enterprise with an annual output of 10,000 tons of lithium carbonate in Qinghai that the company's ex-factory price of battery-grade lithium carbonate was 430000 yuan / ton on February 17.

With the rising price of lithium carbonate, there is a considerable distribution difference in both the spot market and the electronic disk market, and it is even possible to make huge profits by combining the two.

Due to the insufficient supply of capacity, the lack of supply in the market, and the history of wealth creation in the forward market, it has attracted a large amount of money to pour into the lithium carbonate forward market, thus driving up the price of lithium carbonate forward contracts. According to industry insiders, some dealers also straddle two circles, making money on promising forward contracts on the one hand and hoarding large amounts of goods on the other, resulting in a further rise in the spot price of lithium carbonate. You can make a lot of money from both sides.

At present, the problem of skyrocketing prices of lithium materials has attracted the attention of regulators. On Feb. 28, Xin Guobin, vice minister of the Ministry of Industry and Information Technology, said it is necessary to crack down on unfair competition such as hoarding and driving up prices. It may also be learned about the relevant situation from the industry research, and then release the relevant signals to stabilize market expectations.

Profit distribution and circulation, middle and lower reaches enterprises actively occupy "lithium"

At present, there is a mismatch between supply and demand from 2021 to 2023, and the supply is mainly stuck in the resource side. in addition to the above factors of grabbing exorbitant profits, the distribution and circulation of profits in the lithium battery industry chain is also changing.

According to rough statistics, the gross profit margin of lithium battery enterprises has decreased significantly since the beginning of 2021, while the gross profit margin of lithium salt enterprises has increased significantly in the same period, some reaching about 60%.

In other words, benefiting from the mismatch between supply and demand, the reasonable profits of upstream lithium salt enterprises have been better guaranteed, and many enterprises have turned losses into profits and achieved positive growth, but the days of lithium salt demand-side enterprises are "getting tighter and tighter".

In this regard, in order to reduce the impact of overseas markets, reduce "middlemen" to bid up prices, and to ensure supply and enhance their own cost competitiveness, domestic lithium battery enterprises and materials enterprises have taken action to distribute some salt lakes and mineral resources at home and abroad by means of investment and cooperation. On the one hand, domestic enterprises have invested heavily in overseas resources such as Australian mines and increased their share of shares; on the other hand, it is worth mentioning that Yiwei Lithium Energy, BYD, Fulin Seiko, Ganfeng Lithium Industry, Tibet Mining and other enterprises have begun to strengthen the development of lithium extraction from domestic salt lakes in order to improve domestic independent control. Ningde era, Guoxuan Hi-Tech and other battery companies stationed in Yibin, Sichuan, are expected to accelerate the industrial landing of lithium extraction technology from lithium mica.

It can be seen that regional market differences are unpredictable, and the "release" of strategic resources by overseas countries has caused "damage" to strategic resources. coupled with the malicious hoarding and hoarding of some participants, they all regard the seriously high price of lithium products as the "flood discharge outlet" in the end. Although domestic lithium battery enterprises temporarily "bear" the result of skyrocketing prices of raw material resources, this is also a helpless move that they have no choice but to do. Fortunately, domestic and foreign industrial chain enterprises are taking positive actions, and good industry prosperity should not become a tool for capital speculation. Curbing the sustained skyrocketing price of resources requires the joint efforts of all parties in society and industrial chain enterprises, and let the "demon lithium" become "golden lithium" as soon as possible, so that the new energy automobile industry can develop healthily, with high quality and sustainable development.