Tianfeng Securities: Chile's closure leads to the reduction of lithium carbonate supply and lithium prices are expected to continue to rise.

Summary:

Event: the Chilean Ministry of Health announced that with effect from the 5th of this month, all non-essential outbound travel of Chilean residents will be restricted for a period of 30 days. Only in case of emergency, humanitarian reasons, disease treatment and other necessary circumstances, can you apply to the police for a special travel permit to leave the country.

Comments:

Chile is the second largest lithium supplier in the world, accounting for 74.08% of China's imported lithium carbonate in 2020. According to the annual statistics of USGS2020, Chile is the second largest lithium supplier in the world (after Australia), producing 18000 metal tons of lithium in 2020, accounting for 22% of the world's total output.

Chile's transportation cycle is about 35 days, and the closure will significantly affect China's lithium carbonate imports in May. Chile's two major lithium salt producers, SQM and Abel Lithium Carbonate, are both produced from Atacama Salt Lake. We assume that both of them are exported through the nearest Antofagasta port of Atacama Salt Lake, corresponding to the shipping time of 33-35 days, and the domestic arrival time from May 8 to June 9. Chile's closure will significantly affect China's lithium carbonate imports in May.

Supply shrinks and demand is strong, and lithium prices are expected to continue to rise. Chile's two major lithium salt factories, SQM+ Yabao, have a nominal production capacity of 110000 tons of lithium carbonate, accounting for 75.6% of the total production capacity of the four Great Lakes in South America. Chile's closure in January will create a short-term shortfall of about 8176 tons of global lithium salt supply. At the same time, we observe that the downstream new energy vehicle market is not weak in the off-season. From January to February, global (BEV) sales of pure electric vehicles reached 176000, a year-on-year increase of 123%. Supply contraction superimposed strong downstream demand, lithium prices are expected to continue to rise.

The long-term production expansion of South American Salt Lake may be postponed, and it will be difficult to release production capacity in 2021. Chile's two major lithium salt enterprises have production expansion plans in 2021, in which SQM plans to add 50, 000 tons of lithium carbonate capacity by the end of 2021, and Abel plans to build a LaNegraIII/ IV 40, 000-ton lithium carbonate production line by the middle of 2021 and put into use by the end of 2021. We are concerned that in addition to blocking the border, the Chilean government ordered the blockade of the capital as early as March 26, and we believe that the epidemic has had a significant impact on Chile. The specific time point for the subsequent resumption of real economic production is still uncertain, and the two giants in South America may not be able to release lithium carbonate production by the end of 21.

The Black Swan incident highlights the importance of resource layout, and lithium salt factories with multiple resources around the world will be more competitive. Chile's national vaccination rate is more than 57%, but it is still difficult to control the novel coronavirus epidemic. Under the background of high uncertainty in global epidemic prevention, lithium salt plants that distribute global lithium resources will be more competitive. It is recommended to pay attention to: 1) Lithium salt plants with various kinds of lithium resources in the world: Ganfeng Lithium Industry and Tianqi Lithium Industry. 2) Lithium salt plants that have signed underwriting agreements with a number of resources around the world to lock in supply: Ya Hua Group. 3) resource enterprises with high-quality mines / salt lakes in China: Rongjie shares.

Risk tips: global vaccination is not as expected; lithium price downside risk; project construction is not as expected.