[SMM Analysis] it will take time for lithium carbonate prices to hit bottom in cold winters

SMM, 12 Dec:

Unlike 2018, this winter seems to have been unusually long. Downstream mainframe factory and battery enterprise output decreases again and again, transmits to the upstream raw material manufacturer, has to reduce the price to ship before year.

Despite some good news from the industry in November, foreign car companies have updated their electric plans and formally turned to the track of electric development, and will increase the layout of China's new energy market strategy. In addition, the newly released draft of the New Energy vehicle Industry Development Plan (2021-2035) mentions that new energy vehicle sales accounted for 25 per cent of the total vehicle sales in 2025 (about 7 million based on the annual sales of 28 million vehicles in 2018). It also shows that the country's determination to develop new energy vehicles has not changed, but for the domestic spot market, compared with rekindling hopes for the future development of the industry, How to get through the current "dark moment" is more important.

It will take time for lithium carbonate prices to hit bottom

Lithium carbonate prices remained relatively stable in the first two quarters of this year, on the one hand, because of the tightening of production in Qinghai and some large spodumene production plants at the beginning of the year, and on the other hand, due to the limited smelting process at the supply end, the release of new production capacity was lower than expected; on the other hand, due to the "rush to install" of new energy vehicles, the purchase volume of the middle and lower reaches increased. Even in May, lithium carbonate prices rose slightly.

However, with the end of the transitional period of new energy subsidies in June 2019, the downstream demand has been rapidly weakened, and the whole industrial chain has entered the "winter" ahead of schedule, and lithium carbonate is no exception. Transaction prices in the battery lithium carbonate market fell in the second half of the year, falling below 60,000 in mid-October and below 50,000 this month. Industrial lithium carbonate has also seen prices below 40, 000 this month.

From the fundamental point of view, this round of lithium carbonate price decline is still caused by the rapid weakening of demand under the background of "supply exceeding demand". However, at a time when the price of lithium carbonate is constantly approaching the break-even point of enterprises, what will be the price trend in the future, SMM believes that we still need to pay attention to the following aspects:

1. Progress of production in Qinghai area

In 2018, the total domestic production of lithium carbonate was 121000 tons, of which the output of lithium carbonate in salt lake accounted for 24.8%. With the completion and commissioning of Minmetals Salt Lake, Xinghua Lithium Industry and Zangge Lithium Industry, the domestic production of lithium carbonate in salt lakes increased by 17.5% in 2019 compared with the same period last year. However, due to the domestic production of mica lithium carbonate increased by 174% in 2019, the proportion of lithium carbonate production in salt lake decreased slightly to 22.7%.

At present, many domestic salt lake enterprises, including Lanke lithium industry, Qinghai CITIC Guoan, Minmetals salt lake, etc., have an annual output of more than 5000 tons, and the lithium extraction technology of domestic salt lake enterprises has been relatively mature. At present, because most of the production processes of salt lake enterprises are still unable to produce battery grade lithium carbonate directly, lithium carbonate in salt lake is mostly used in lithium manganate and lithium iron phosphate. However, because the production cost of salt lake still has a great advantage over spodumene, when the price difference between industrial grade lithium carbonate and battery grade lithium carbonate is more than 8000 yuan, the purification enterprise still has a good profit margin.

In addition, in the fourth quarter of previous years, lithium carbonate production in salt lakes is usually slightly reduced by the weather, superimposed "rush" demand increases, supporting the price to a certain extent. However, according to salt lake enterprises to SMM, with the improvement of process and plant design, the impact of seasonal factors on production has been negligible.

In 2020, only the blue lithium industry in the salt lake area has a clear production expansion plan, and the rest of the enterprises are in the process of capacity climbing. If the following enterprises successfully reach production, the new supply of lithium carbonate in the market will increase by about 46000 tons.

2. Cost change of lithium extraction from mica

Before that, lithium carbonate prices rose, with 4 per cent grade mica concentrate selling for about 2000 yuan per ton. At the same time, because the lithium mica concentrate contains potassium, sodium and other elements, the front-end treatment process is more than spodumene, the processing cost is higher, and before the initial development of enterprise technology, can not directly produce battery grade lithium carbonate, so mica lithium extraction has no obvious advantage.

However, with the price of lithium carbonate falling all the way in 2018, the price of mica concentrate has gradually dropped to the current 9501000 yuan / ton. In addition, the technology of extracting lithium from mica also has a certain breakthrough, the mainstream process trend in the future is sulfate roasting method, one-step precipitation of lithium to battery-grade lithium carbonate, the processing cost has been significantly reduced.

According to SMM, at the beginning of this month, Jiangxi Province has taken the lead in lowering the price of battery-grade lithium carbonate, and has passed some cathode material enterprise samples. If the "one-step" process tends to mature, and the mica enterprises can effectively deal with the by-products produced in the production process, the cost will be further reduced, which may have a great impact on the supply pattern and price of lithium carbonate.

3. The change of import and export structure and price of lithium carbonate

2019年1-10月中国碳酸锂进口量及均价

Since May 2019, the import of domestic lithium carbonate has been abnormal, with a rapid growth rate. According to SMM, lithium carbonate imports from Chile and South Korea have increased. South Korean import growth We speculate that the orders of foreign companies in South Korea have been broken and re-sold to China. On the other hand, lithium carbonate imported from Chile has not been completely removed by downstream consumption and dealers of cathode materials, and some of them still exist in third-party warehouses in the form of inventory. On the one hand, it reflects that the global lithium carbonate is in a "supply over demand" situation; on the other hand, because Japan and South Korea are mainly 6 series materials, demand structure or lithium hydroxide as the trend, the future demand market for lithium carbonate is mainly concentrated in China.

In a third-quarter conference call, SQM said it currently sells 20-25% of its lithium salt to China, which will increase its share of sales in China next year.

If the import of lithium carbonate increases further, and the cost of lithium carbonate in salt lake has a significant advantage over the domestic ore lithium carbonate, if the imported lithium carbonate takes advantage of the cost advantage to ship the goods at a low price, it will put further pressure on the domestic lithium carbonate price in the future, or will accelerate the clearance rate of domestic excess smelting capacity.

4. Progress of inventory consumption

(inventory calculation starts in January 2018)

In 2018, as the output of new energy vehicles in China increased by 55.3% compared with the same period last year, and the demand for all links of the industry chain grew rapidly, lithium carbonate was basically in a slightly oversupplied level (less than 2 months). At the same time, as Qinghai Salt Lake entered the winter overhaul and production reduction, lithium carbonate inventory level even slightly decreased in the first quarter of this year, this phenomenon is also directly reflected in the price changes at that time.

However, with the end of the subsidy transition period in June, downstream demand plummeted, and with the release of capacity from a number of smelters in the second half of the year, the supply of lithium carbonate increased, the amount of superimposed imported lithium carbonate increased, and the pressure on industry inventories increased sharply. SMM expects cumulative stocks of lithium carbonate to reach 41000 tonnes (about three months) by December 2019.

According to SMM tracking research, with the lithium carbonate transaction price all the way down, the current Jiangxi smelting enterprises have appeared to reduce production and stop production. At the same time, spodumene lithium carbonate production enterprises said that once the mainstream transaction price fell below 50,000 yuan / ton, or will consider reducing production.

SMM believes that the price of lithium carbonate still has room to fall before the Spring Festival, with the average price of battery-grade lithium carbonate falling to 51000 yuan per ton in December. First, in the current situation of sporadic downstream demand, in order to reduce the inventory level, some enterprises have to withdraw funds, or have to sell goods; second, new enterprises may also choose to take the initiative to reduce prices to expand market share. The current industry inventory level is high, if the short-and medium-term upstream enterprises do not have obvious production reduction plans, downstream demand has not significantly improved, the price or long-term span at the bottom. In this process, the battery-grade lithium carbonate with relatively high inventory pressure or the party that actively reduces the price, while the industrial-grade lithium carbonate is in a passive position because of the relatively stable demand for downstream lithium manganate and lithium ferric phosphate. In addition to some of the enterprises that have broken through the cost line, purification enterprises will be squeezed because the price difference between electricity carbon and industrial carbon is narrowed, or will be the first to choose to cut production.

SMM Cobalt Lithium Research team

Hong Lu 021-51666814

Qin Jingjing 021-51666828

Cui Binhui 021-51666780

Wuyang 021-51666818