[industry observation] Lithium Industry in the cycle: rising prices, grabbing orders and locking Ore

Financial Associated Press (Hangzhou, reporter Deng Hao) News, recently, the price of cathode materials has been rising continuously, and the raw material lithium carbonate has jumped to a high of 85000 yuan / ton, double the trough of 38000 yuan / ton last year.

At the recent seminar on the market situation of China's lithium industry and the meeting between supply and demand of the lithium industry, many lithium resource manufacturers said that "the quantity is locked but not the price", "the order for the whole year has already been signed, there is no stock", and "they are stepping up production expansion."

A number of experts believe that due to the strong demand for downstream new energy vehicles and energy storage, while the raw material supply side is peaking in the capacity cycle, a new round of capital expenditure has not yet begun on a large scale, and the lithium industry is in a new cycle of price increases. Power battery manufacturers under pressure, continue to deepen bundling with upstream resources, companies that can effectively control the cost may take the lead in this cycle.

Subsidize the demand of iron lithium heating for retrograde car enterprises

Subsidies for new energy vehicles have fallen sharply, entering a market-driven period of high growth since the second half of last year, and the market is expected to sell 2 million new energy vehicles this year.

Sub-structure, previously based on battery energy density subsidies, resulting in high energy density ternary battery (NCM) occupy the mainstream of the market. The subsidy slope superimposed last year a number of 3811 battery spontaneous combustion accidents, low-cost, high-safety lithium iron phosphate battery (LEP) favored by a large number of car companies, demand picked up quickly.

The best-selling models in 2020, Hongguang MINI EV, Model3, BYD, etc., are all installed with lithium iron phosphate batteries. According to SPIR data, among the power battery installations last year, lithium iron phosphate batteries were co-installed 21.7 GWH, accounting for 35.1%, which was the main product that contributed to the overall increase in Synchronize installed throughout the year.

According to incomplete statistics by a reporter from the Financial Associated Press, since the beginning of this year, Tesla plans to replace his standard battery models with lithium iron phosphate batteries. Volkswagen will clearly use lithium iron phosphate batteries, while Xiaopeng has launched versions of P7 and G3 with lithium iron phosphate batteries. Hyundai is also preparing to buy blade batteries from BYD.

According to the starting point study, most of the automobile companies using LEP use CTP scheme, using moduleless or large module technology, so that the energy density of the system can reach the level of 5-series ternary battery, and the cost can be reduced to the maximum extent.

Battery manufacturers are also accelerating the expansion of lithium iron phosphate battery capacity. At the end of last year, 300750.SZ announced a total of 39 billion yuan in new power battery production projects, and in February this year, it plans to invest no more than 29 billion yuan in the construction / expansion of three major lithium battery production bases. 002594.SZ plans to have total capacity of 75Gwh and 100Gwh, including blade batteries, this year and next. Yiwei Lithium Energy (300014.SZ) has expanded its production of square lithium iron phosphate batteries twice within a month, with an investment of 4.9 billion yuan.

The shortage of supply is in the midst of a new cycle of price increases.

The domestic market for new energy vehicles began to explode in 2015, and Talison, which at that time supplied lithium concentrates from all Chinese smelters, was jointly acquired by 002466.SZ and ALB and supplied only to these two companies, leaving lithium concentrates in short supply. As new lithium mines continue to be mined out to enter the market, cathode material factories and battery factories have large production capacity, and the whole industry chain has entered into replenishment of inventory.

Starting from 2018, the downstream overcapacity, the whole industry chain started destocking. In 2019, subsidies for new energy vehicles have fallen sharply, consumer demand in the lower reaches has entered a lingering period, and lithium ore resources are gradually in surplus. Wu Huayu, chief analyst of Guotai Junan's non-ferrous metals industry, said, "when lithium prices were 38000 yuan per tonne last year, more than 70 per cent of lithium salt companies lost money."

"it is currently in a new cycle of price increases." Wu Huayu believes that at present, the price of lithium carbonate continues to jump to 85000 yuan per ton, the profits of smelters are repaired rapidly, and lithium concentrates are gradually profitable, but upstream capital expenditure takes time, mines need to be invested in one and a half to two years, and salt lakes need three to five years. Prices go down only after the supply is released.

"the current round of demand is greater than around 2017, and the matching capital expenditure has not yet fully begun. The last round of capital expenditure was mainly matched by Australia's lithium mines, of which about 60% of the money came from China. At present, due to trade frictions and other factors, it is very difficult for Chinese capital to enter Australia, which may lead to a slower investment cycle. " Wu Huayu said.

Wu Huayu estimates that the demand of the lithium industry will be 43-520000 tons in 2021, while the maximum output released by supply will be 540000 tons, which is in a tight balance between supply and demand this year. If demand exceeds expectations, or replenishment / scheduling exceeds expectations, supply may fall short of demand.

For the lithium price center in the next three years, Wu Huayu believes that it will be 9-100000 yuan / ton, because most of the high-quality lithium resources are in the hands of overseas lithium enterprises, but its resource development efficiency is low, the time is long, and Chinese enterprises have strong smelting capacity, but they have less resources. the pace of capital expenditure in the global lithium industry will be far behind demand.

Battery pressure resource binding and future pattern

At present, the increase in the price of lithium resources has been transmitted to the material end, and small battery manufacturers have begun to follow suit, while the price of power batteries is still stable at 0.53-0.70 yuan / wh. People in the relevant industry believe that the actual experience in the past few years has proved that the price rise initiated by the resource side cannot be transmitted to the battery side. "the battery price is restricted by the downstream application side, and the price increase will seriously affect sales, so its development trend can only be continuous price reduction."

Hu Yang, a partner at EVTank, believes that the reason for the price increase of small battery factories is that they are too small to withstand the rising pressure of raw materials, on the other hand, their customers are power tools, electric bicycles and consumer electronics, and battery costs do not account for a high proportion of the whole machine, and the rise in battery prices is not sensitive to the whole product.

As the mismatch between supply and demand of raw materials needs to be adjusted in two or three years, power battery enterprises have a weak say in the main engine factory, the pressure of price increase can only be digested internally, and the profits of a large number of smaller enterprises will be greatly affected. At present, leading enterprises can still maintain a gross profit margin of about 25% and have a strong pressure-bearing capacity, which may increase the concentration of the industry.

In Hu Yang's view, there are mainly two ways for power battery enterprises to reduce costs, one is to improve capacity utilization, scale, qualified rate, and technological improvement, and the other is external strategic cooperation with raw material manufacturers to lock prices for long-term supply. invest in upstream raw materials to mitigate the impact of price increases.

As early as 2018 and 2019, Ningde Times subscribed for a stake in Pilbara Minerals, an Australian lithium mining company owned by North American lithium industry North American Lithium lnc. (NAL). In 2019, it established a joint venture with 300769.SZ, the leader of lithium iron phosphate cathode material. In order to ensure diversified supply, since the end of last year, it has also participated in the capital increase of lithium iron phosphate material enterprises such as Hunan Yuneng and Jiangxi sublimation.

Lithium iron phosphate leading enterprise Guoxuan Hi-Tech (002074.SZ) has also recently increased the layout of upstream raw materials and mineral resources. On March 24th, Guoxuan Hi-Tech signed a 11.5 billion yuan lithium new energy industry chain project with Yichun City, and also set up a joint venture with Yichun Mining Co., Ltd. to jointly develop mineral resources and ensure the company's lithium resource supply.

Wu Lili, chief analyst of IHS Markit lithium resources and new energy industry chain, told the Financial Associated Press, "the increase in the price of raw materials will certainly be transmitted to the battery end, so battery companies such as Ningde era, LG, and even car companies like Tesla have also begun to lay out upstream resources. At present, the supply and price of raw materials are not very stable, and the general trend in the future must be to control its supply and price. "