Anxin Securities: the upward power of aluminum price is still accelerating the extension of lithium ore to the smelting link.

The recovery of supply after the festival is slow, and the price of electrolytic aluminum remains strong:

The epidemic situation affects the outward transportation of alumina in Guangxi, and the domestic electrolytic aluminum production is continuously affected by the double control policy of environmental protection.

1) according to SMM data, the completed production capacity of electrolytic aluminum in Guangxi province is about 2.815 million tons, of which the completed production capacity of electrolytic aluminum in Baise region of Guangxi is 2.315 million tons, accounting for 82.2% of the total production capacity. Due to electricity and other reasons, the operating rate of electrolytic aluminum in the province has been insufficient. By the end of January, the operating capacity of electrolytic aluminum in Guangxi was about 1.98 million tons, of which 1.73 million tons were involved in Baise.

2) in addition to supplying local electrolytic aluminum enterprises, alumina in Guangxi needs to be transported about 500000 tons per month. Recently, under the influence of the closed control measures of the epidemic situation, the external transportation of alumina has been blocked.

3) under the influence of environmental protection policy, alumina enterprises in Shanxi-Shandong-Henan region have reduced production to varying degrees. According to the current operating alumina production capacity of the three provinces of SMM, the total production reduction has reached 15.02 million tons.

During the Spring Festival, the accumulation of aluminum is slow, and the supply is limited or the performance of aluminum removal is stronger than expected. During the Spring Festival, electrolytic aluminum plants mainly consume in-plant stock. at present, the in-plant alumina inventory of some electrolytic aluminum plants can maintain production for about 7-10 days. Alumina supply is tight, electrolytic aluminum resumes slowly or further supports aluminum prices. According to SMM,2022, the accumulation of aluminum ingots and bars during the Spring Festival was 178000 tons, an increase of 19.1 percent, and a total increase of 223000 tons in the past four weeks, an increase of 25.1 percent, which is significantly lower than the level of the past three years.

Electrolytic aluminum import window continues to close, the domestic import of electrolytic aluminum may be limited. According to SMM statistics, China's net import of electrolytic aluminum in 2021 was 1.5727 million tons, an increase of 48.90% over the same period last year. However, the conflict between Ukraine and Russia has pushed up natural gas prices, increasing pressure on overseas energy costs to support aluminum prices, and import windows may continue to close.

Real estate and infrastructure have benefited from stable growth policies and enhanced demand resilience, and new energy vehicles have supported the continued growth of demand for aluminum in the automotive sector. In 2021, China's automobile production and sales completed 26.082 million and 26.275 million respectively, an increase of 3.4% and 3.8% respectively over the same period last year, ending the decline for three consecutive years since 2018. The annual sales of new energy vehicles exceeded 3.5 million and their market share increased to 13.4%. It is expected that with the acceleration of the global electrification process, new energy vehicles with higher unit consumption of aluminum will support the continued growth of aluminum demand in the automotive sector.

Overseas aluminum prices remain high, electrolytic aluminum imports are less than expected, resulting in low domestic inventory, while domestic supply resumes slowly, aluminum goes out of storage or exceeds expectations, raw material and energy costs support electrolytic aluminum prices remain strong, and continue to value the integration of raw material and energy processing. Electrolytic aluminum companies with cost advantages: Shenhuo, Nanshan Aluminum, Tianshan Aluminum and so on.

MRL increases its Wodgina holdings to 50%, controls the Mt Mairon underwriting rights to 51%, and accelerates the extension to the smelting process:

According to the latest announcement of MRL, from February 1, 2022, the company will take control of the underwriting right of Mt Mairon51% (50% unchanged), and sign a lithium hydroxide processing agreement with Ganfeng Lithium Industry for a period from February to August 2022, which can be extended. MRL is expected to sell lithium hydroxide products from May 2022, which will be sold by Ganfeng Lithium Industry. In addition, MRL will increase its Wodgina holdings from 40% to 50% and will be responsible for the management and operation of Wodgina. The equity ratio of the Kemerton lithium hydroxide smelter remains at MRL 40%/ALB 60%, with raw materials provided by Greenbushes. MRL and ALB will build a new lithium hydroxide smelter overseas with a 50 per cent stake, and ALB will be responsible for operation and sales. MRL hopes to expand its smelting capacity to digest Wodgina ore and is expected to achieve a capacity of 100000 tons of lithium hydroxide within five years.

The company released its H2 production and operation data for 2021:

1 、 Mt Marion

1) output: 198000 tons

2) sales volume: 207000 tons, with exports of about 489000 tons in 21 years.

3) the current annual output of: Mt Marion is 45-475000 tons, and it is planned to expand production by 20-30% to 54-617500 tons.

4) cost: 732.4 AUD pinch t, which is mainly due to the increase in freight and royalties.

2 、 Wodgina

Progress of resumption of production: production line 1 totaling 250000 tons of lithium concentrate / annual production capacity, which is expected to be put into operation in April 2022; production line 2 and 3 a total of 500000 tons of lithium concentrate will be resumed according to market demand.

Under the background of the continuous scarcity of lithium concentrate, the trend of integration of resources and smelting has become more prominent. On the one hand, the smelter side actively obtains upstream raw materials to ensure the operating rate and ton profit; on the other hand, the resource side intends to extend to the smelting end to obtain more added value. It is suggested that continuous attention should be paid to the targets of perfect resource layout and smooth logic of integration, such as Ganfeng lithium industry, Tianqi lithium industry, Yongxing materials, Rongjie shares, Salt Lake shares, Tibet mining industry and so on.

Glencore's cobalt production increased by 14% in 2021 compared with the same period last year, and it teamed up with Britishvolt to build a British electric vehicle battery recycling plant:

According to Glencore's 2021 production report, the company's own copper production was 1.1957 million tons, down 5% from the same period last year, mainly due to the sale of Mopani, the expected decline in the grade of Antapaccay, and the reduction of copper by-products from mature zinc and nickel mines; its own cobalt production was 31300 tons, an increase of 14% over the same period last year, mainly due to the increment brought about by the restart of Mutanda in 2021; its own zinc production was 1.1178 million tons, down 4% from the same period last year. Nickel production was 102300 tons, down 7% from a year earlier, due to MurrinMurrin's shutdown in the second quarter and capacity maintenance. Cobalt ore output in the fourth quarter was 7900 tons, + 36.21% year-on-year and-8.14% month-on-month. The progress of supply release remains to be seen.

The 2022 production guidance is consistent with the December 2021 investor update. According to the production guidelines for fiscal year 2022, copper production will reach 112-1.18 million tons, cobalt production of 4.5-51000 tons, nickel production of 11-120000 tons, and zinc production of 108-1.14 million tons per million 30kt. During the forward period 2022-2024, total cobalt production will increase as a result of Mutanda restart and Katanga's planned increase in production; nickel production will increase as a result of Koniambo's increase and the upcoming Canadian expansion project; zinc production Zhairem (Kazzinc) increase will be offset by Bolivian asset disposal and mine closure at the end of the life cycle during that period, while zinc production will decline in 2024 in line with the mine closure plan.

At present, the original supply of cobalt is still in short supply due to the epidemic and logistics constraints, and cobalt prices may continue to fluctuate at high levels. It is suggested to pay attention to the companies with the potential of releasing copper and cobalt mineral resources: Huayou Cobalt Industry, Luoyang Molybdenum Industry, Shengtun Mining Industry, Hanrui Cobalt Industry and so on.

Risk tips: demand is lower than expected, supply release is higher than expected, etc.