King Nonferrous team foreword: since the second half of 2020, the judgment of lithium price has been revised several times, and each time it is more and more optimistic. The mental process of judging lithium price from "rebound" to "reversal":
From 18 to September, it is judged that the lithium price has entered a state of overfall (70% of corporate losses), and Q4 has seen the lithium price overfall and rebound. In October, China trams in Europe exceeded expectations, revised global EV sales, revised the tight balance between supply and demand in the lithium industry in 2021, and became more optimistic about lithium prices in 2021.
In March and November, the downstream cathode material & battery factory opened the rhythm of lithium salt replenishment, and the price of lithium in Q4 exceeded our expectations. The cash flow of Altura lithium mine was broken and shut down, and the concentration of lithium ore rose further, judging the high probability of shortage of lithium ore in 2021. The rising price of lithium concentrate will raise the industry cost curve at the back end and support the further rise of lithium price. The price of lithium in 2021 is at least above 60,000 (the price is very difficult to bid, etc.). The possibility of a higher-than-expected rise cannot be ruled out at all.
Lithium prices have been oversold and there is no room for them to fall. In September 2020, the price of battery-grade lithium carbonate fell to 38000 per tonne, below the lowest level in 2015. From the resource-side point of view, the price of lithium concentrate fell below the cash cost of Australia's second-tier lithium mines, while two companies in Salt Lake in South America made a profit (ALB, SQM), 2 lost money (Livent, ORE). In domestic smelters, 80% of enterprises are in a state of loss in accounting profits. The price of lithium has overfallen and there is no room to fall.
The tram exceeded expectations and the lithium industry entered a tight balance. In 2020, the demand of the lithium industry is 33-360000 tons, and the supply capacity is 560000 tons. The surplus is still serious, and the utilization rate of supply-side capacity is only 69%. With the higher-than-expected growth of trams in China and Europe, the demand of the lithium industry will be 40-440000 tons in 2021, and the supply capacity will be reduced to 540000 tons, while the maximum production capacity will be 460000 tons. In 2021, the supply and demand of the lithium industry will enter a tight balance.
From lithium ore to lithium salt, it is optimistic that the price of lithium industry will rise in an all-round way in 2021. Only four of Australia's seven mines are currently in normal production: Talison, Marion, GXY and PLS. The rest of AJM and Bald Hill went bankrupt and stopped production, and Wodgina was hidden by ALB. While Talison only sells internally to the two major shareholders Tianqi and ALB, Marion underwrites to Ganfeng and does not flow into the market, and the remaining Australian lithium concentrate flowing into the market is only 65000 tons of LCE production capacity of GXY+PLS, which is far from meeting the demand for lithium ore from other smelters in the market. We judge that the supply of lithium concentrate will be tight and prices will rise in 2021, pushing up the back end of the cost curve of the lithium industry (warping tail effect), supporting the rise in lithium salt prices. We expect the price of battery-grade lithium carbonate to rise to 60,000 / ton in 2021.
Maintain the overweight rating of the lithium industry. We believe that the rapid development of new energy vehicles has driven the rapid growth of the lithium industry. We predict that the lithium industry will maintain a 25% growth rate in the next 5 years. On the supply side, the concentration of the lithium industry will gradually rise, and the resource end dominated by lithium mines will gradually enter a shortage in 2021. We are optimistic about the overall rise in prices, and increase our holdings: Ganfeng Lithium Industry, Yongxing Materials (covered by Iron and Steel Group). Benefits: Ganfeng Lithium Industry (HK), Ya Hua Group, Sheng Xin Lithium Energy, Tianhua Super Clean, ST Fujie, China Mineral Resources.
Risk hint: the growth rate of new energy vehicles is not as fast as expected.
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