Why is it difficult to have high supply with high lithium price? [agency Review]

In this cycle of lithium price, the core is carried out around the resource side, and the types of development are mainly salt lakes and other resources. After the last cycle of lithium price, due to the obvious accumulation of inventory in each link of the industrial chain, it entered a two-year de-depot cycle from top to bottom. With the rapid growth of downstream demand in 2021, the scarcity of the mine end is prominent, and its status is significantly higher than that of the smelting end. Lithium resources have been in short supply for a long time. In the second half of 2022, all kinds of lithium resources projects may gradually enter centralized production. Under the uncertainty of the project itself and the high demand, the supply of lithium resources may be tight for a long time. It is suggested that attention should be paid to the targets with high resource ownership rate: Ganfeng Lithium Industry (002460.SZ), Tianqi Lithium Industry (002466.SZ), China Mineral Resources (002738.SZ), Yongxing Materials (002756.SZ), Salt Lake shares (000792.SZ), Shengxin Lithium Energy (002240.SZ), Tibet Mining (000762.SZ), Yahua Group (002497.SZ) and so on. In addition, salt lake development plays a leading role in this round of capital expenditure, and it is recommended to pay attention to 300487.SZ, a leading company in the technology, materials and installation of lithium extraction from salt lake.

The main points are as follows:

Looking back at the last cycle of lithium prices, the high price of lithium reached 180000 / ton in 2016-2019.

From the point of view of the supply of major lithium resources, 1) Australian minerals can expand rapidly during this period. Greenbushes is the only mature mine in production in Western Australia in 2016. In 2017, Mt Cattlin and Mt Marion were put into production, and the number of mature lithium concentrate mines increased to three. In 2018, Pilbara, Altura and Bald Hill lithium concentrates were gradually put into production, and the number of mature lithium concentrate mines increased to 6. In 2019, the large lithium mine Wodgina was put into production, but due to the decline of the industry, it stopped production and maintenance in November of that year. 2) overseas salt lakes already have a certain scale, with a production capacity of 155500 tons in 2019. Mature salt lakes include SQM, ALB, Orocobre and Livent, of which SQM will expand production by 22000 tons in 2017. 3) the domestic salt lake project started gradually in 2018. A total of 42000 tons of lithium carbonate have been built in domestic salt lakes in 2018, of which the output of lithium carbonate in Lanke lithium industry has reached 11000 tons.

In terms of capital expenditure, from 2016 to 2019, the Synchronize industrial chain allocated the upstream resource end and back-end smelting capacity, and the capital expenditure on the ore side was more than that on the salt lake side. 1) the capital expenditure at the ore end is more than that at the salt lake end: from the upstream point of view, the industry was in the early stage of development, and the ore mining and separation technology was mature and relatively easy to develop, while the domestic salt lake only gradually started in 2018 because of certain barriers to lithium extraction technology. the progress of construction is slower than that of ore. From the downstream point of view, the production process of most of the cathode materials and battery industry chain at that time was also relatively immature, and power batteries needed to use spodumene battery-grade lithium carbonate with less impurities as raw materials, so the priority of ore mining was higher.

2) back-end smelting capacity Synchronize accelerated expansion: according to the statistics of China Nonferrous Metals Industry Association, by the end of 2016, domestic smelters had a total lithium salt processing capacity of 170000 tons of LCE, of which 45000 tons of salt lake LCE, including spodumene and mica, had a total lithium extraction capacity of 125000 tons LCE,. By the end of 2018 and 2019, the domestic lithium salt production capacity reached 281000 tons LCE/ year and 572000 tons LCE/ year respectively, and the capacity expansion growth rate is obvious.

The core of capital expenditure in this cycle revolves around the resource side and covers many different types of resources.

This round of capital expenditure is centered on resources, and the types of development are mainly salt lakes and other resources. After the last cycle of lithium price, due to the obvious accumulation of inventory in each link of the industrial chain, it entered a two-year de-depot cycle from top to bottom. With the rapid growth of downstream demand in 2021, the scarcity of the mine end is prominent, and its status is significantly higher than that of the smelting end. However, the global spodumene production capacity is highly concentrated, accounting for 88.6% of the global ore production capacity in 2021, and most of the resources with cost advantages were developed in the last cycle, so it is not the focus of the current lithium price cycle.

The concentration of salt lake capacity is scattered relative to spodumene. At present, the proportion of CR4 of salt lake production capacity in the world is more than 67%. However, due to the progress of salt lake technology and the improvement of product quality, the capital expenditure of salt lake resources is significantly higher than that of other types of resources. according to incomplete statistics, there are more than 35 resource-side capital expenditure projects in 2021, and the investment plan is expected to exceed 67.1 billion yuan. Among them, there are 20 salt lake projects with a total investment of more than 33.1 billion yuan, and 9 spodumene projects with a total investment of about 3.4 billion yuan. In addition, including clay, mica and other types of resources, it is also expected to be completed and put into operation in the current cycle of lithium prices.

Analysis of the current cycle of lithium prices, why is it difficult to have a high supply of high lithium prices?

At present, lithium prices are strong and are still breaking record highs. Although the market is constantly increasing capital expenditure, due to the impact of resource endowments, infrastructure, and macro environment on different projects, capacity construction takes a long time to launch. At the same time, production lines also need a certain debugging and climbing cycle before capacity can be fully released, so there is still not enough supply to be put into the market in the short term. The main results are as follows: 1) the construction period of spodumene mine is mostly 2 years, and there is a long climbing process. 2) the construction period of new salt lake projects is generally about 3 years (including front-end salt fields). 3) at present, raw materials and channels are limited, and recovery has not yet formed a large-scale supply. 4) the capital expenditure of lithium extraction is high, and the mine end needs the continuous support of prosperous lithium price to expand production on a large scale.

Looking to the future, the supply curve tends to be steep, and the trend of industrial chain integration is gradually clear.

The progress of domestic resources development is expected to accelerate: from the perspective of resource-side transaction consideration, the consideration of domestic resources and high-quality lithium ore per ton resources is higher, or the domestic social and economic environment is more stable, and the certainty of project development is higher.

Diversification of development resources: as the lithium extraction process of salt lake and mica tends to mature, and the products are recognized by the mainstream supply chain, for example, Yongxing material's current long-term customers include leading power battery material enterprises such as Xiamen Tungsten Xineng, Hunan Yuneng and German Nano, and the types of resource development show a diversified trend. In addition, resources such as clay are expected to gradually become the mainstream supply.

The profit at the smelting end is greatly affected by the mine end, which is beneficial to the logical deduction of the integration of the industrial chain.

Risk tips: terminal demand has shrunk sharply; lithium prices have fallen sharply; lithium minerals can release more than expected; assumptions are lower than expected, and so on.