Continue to be optimistic about the upward profit of electrolytic aluminum under the steady growth and dual-carbon policy [institutional review]

Continue to be optimistic about the upward profit of electrolytic aluminum under the steady growth and double-carbon policy.

Event: on March 5, the Fifth session of the 13th National people's Congress was held. According to the work report of the State Council, (1) macroscopically, the target of GDP growth in 2022 is set at around 5.5%, with a clear orientation of "steady growth". "about 5.5%" is the "medium and high growth rate" target of the 14th five-year Plan. From 2019 to 2021, the compound growth rate of GDP was 5.1%. The compound growth rate of 21Q4 was 5.2% compared with the same period last year. The "5.5% target" shows that the government attaches importance to creating a good environment for steady and orderly economic development in 2022, boosting market sentiment. (2) the policy of non-ferrous metals industry: the policy of double control of energy consumption is relaxed and the work of double carbon is promoted in an orderly manner. According to the report, "the target of energy consumption intensity will be assessed as a whole during the 14th five-year Plan period, with appropriate flexibility, and new renewable energy and raw material energy will not be included in the control of total energy consumption." At the same time, it is required to promote carbon peak work in an orderly manner, and promote the transformation from "double control" of energy consumption to "double control" of total carbon emission and intensity.

Comments: continue to be optimistic about the upward profit of electrolytic aluminum.

As a kind of high energy consumption, electrolytic aluminum consumes 13500kw per ton of electrolytic aluminum according to SMM, which is the main source of carbon emissions in the electrolytic aluminum industry chain. Compared with the across-the-board production reduction in 2021, the relaxation of the "energy consumption control" policy this year is good for the volume of the electrolytic aluminum industry. At present, the global electrolytic aluminum is seriously divided inside and outside, and the gap between supply and demand still shows a trend of accelerated expansion. Overseas, the ferment of the conflict between Ukraine and Russia has led to a sharp rise in energy prices, and a large number of aluminum factories in Europe have reduced production and stopped production, making it difficult to recover in the short term, resulting in high aluminum prices; domestic electrolytic aluminum production has been accelerated, but it is difficult to exceed the level of the same period last year in the first quarter. Combined with the recent production reduction in Guangxi, Shanxi and other areas and the resumption of production in other areas, according to SMM estimates, domestic electrolytic aluminum production is expected to resume production and increase production by nearly 2 million tons by the end of the first quarter, and the domestic electrolytic aluminum operating capacity will rise to about 39.6 million tons.

Tianhua Super net plans to underwrite GL1 lithium concentrate, which will help to open up the space for long-term growth.

Event: March 3, according to the Australian Stock Exchange announcement, Global Lithium Industry (ASX:GL1) and Tianhua Super net signed a 10-year spodumene concentrate underwriting agreement. Under the terms of the agreement, Tianhua Ultra Clean will underwrite no less than 30 per cent of products produced by GL1, while Tianhua Ultra Clean will have the opportunity to increase the number of products above the agreed base quantity of 30 per cent, up to 15 per cent per contract year. Pricing will be based on the market price of spodumene concentrate.

Termination clause: either party may terminate the agreement if the following does not occur on or before December 31, 2024 (or such other date as the parties may agree):

(1) GL1 completed the construction and commissioning of spodumene concentrate plant;

(2) GL1 completes the internal product identification and meets the agreed product standards.

Transaction history review: according to the GL1 announcement, Tianyi Lithium acquired a 9.9% stake in GL1 for A $6.2 million in December 2021, making it the largest shareholder of Global Lithium.

GL1 currently has interests in two mines:

80% interest in the 1.Manna lithium project. According to GL's December 12021 announcement, the company bought 80 per cent of BRB's Manna lithium project for $33 million, including exploration rights and future mining rights for lithium and associated mines. The lithium deposit, mainly spodumene and lithium mica pegmatite, is located about 100km east of Kalgoorlie in western Australia. Preliminary drilling has revealed high-grade lithium mineralization (with an average Li2O grade of about 1.14%), and a large number of exploration and drilling projects are planned for 2022.

100% interest in the 2.MarbleBar lithium mine project (MBLP). The lithium mine is located in the Pilbara area of Daya, Western Australia, and the company conducts preliminary exploration of its Archer deposit. According to the official website of GL1, the resource is 10.5 million tons, and the average grade of Li2O is about 1%, equivalent to about 260000 tons of LCE. Currently, according to the GL1 announcement, the company plans to invest money in the intensive drilling and edge drilling program for the Archer deposit, while in November last year, the company raised A $13.6 million for the project and received investment from Tianyi Lithium Industry.

Comments: lithium resources or long-term shortage, the upstream and downstream of the industrial chain accelerate the layout of lithium mines. According to the announcements of SMM and companies, we have counted 15 resource-side layout cases since the beginning of 2022. The layout of the resource side of the relevant enterprises, or ensuring the supply of raw materials, will help to open up the long-term growth space of the enterprise.

Risk tips: lower-than-expected demand, higher-than-expected supply release, poor macroeconomic performance, etc.