Zhongtai Securities: three judgments on the follow-up Lithium Market

Investment points: at present, the price of lithium carbonate has risen to 90, 000 yuan / ton, the price of coarse-grained lithium hydroxide has risen to 86000 yuan / ton, and the price of lithium concentrate has risen to more than $600 / ton. What is the pace of resource-side expansion? How to judge the trend of lithium price in the follow-up?

Judgment 1: the expansion of the resource side is slow, and the lithium concentrate continues to be in short supply. 1) spodumene mines in Western Australia: since the second half of 2019, high-cost spodumene mines in Western Australia have begun to shut down and reduce production. Alita, Wodgina and Altura mines have been closed one after another, and the number of lithium concentrate production enterprises has been sharply reduced from 7 to 4, and the intensity of capital expenditure in Western Australia mines is lower than expected, there is generally no large-scale production expansion plan, and there is no resumption of production. 2) domestic spodumene mines: at present, only Kangding Methyl Card controlled by Rongjie shares and Yelonggou Lithium Mine under Shengxin Lithium Energy are in operation, and Yajiang Zola Mine under Tianqi Lithium Industry is still undeveloped. Markang Dangba, owned by Zhonghe shares, is still in the stage of mine construction, and on the whole, no new mine has been put into operation for 21 years. 3) the capital expenditure of Salt Lake is lower than expected, and the expansion project is constantly delayed: affected by the epidemic and the low lithium price, South American salt lake enterprises reduced their capital expenditure in 2020, resulting in the continuous delay of expansion projects, and the release time of ALB, SQM and other enterprises was generally postponed to 2022.

Judgment 2: prosperity continues to rise, lithium carbonate price cycle is not over. 1) Lithium salt factory profit repair, performance entered the release period: lithium carbonate price rose to 90,000 yuan / ton, lithium concentrate quoted price of about 610 U.S. dollars / ton, lithium salt factory processing profit using spodumene as raw material has been repaired from loss to about 30,000 yuan / ton. Lithium salt enterprises have entered the performance release period. 2) the prosperity of new energy vehicles continues to rise, and the price cycle is not over: in the short term, due to the increase in the operating rate of domestic salt lakes, the output of lithium carbonate increased in the second quarter compared with the previous quarter, and the price was slightly under pressure in the short term, but the new energy industry chain maintained a high bearing. It is expected that under the catalysis of the peak season of new energy vehicles in the third and fourth quarters, prices are expected to usher in a new round of rise again, maintaining the annual high of battery-grade lithium carbonate or exceeding 120000 yuan / ton. And further higher judgment.

Judgment 3: the price difference between lithium hydroxide and lithium carbonate may continue to be repaired. 1) Lithium hydroxide price difference is gradually repaired: due to the influence of long order pricing and other factors, the price change of lithium hydroxide lags behind that of lithium carbonate. at the highest point, the premium of lithium carbonate relative to lithium hydroxide is about 10, 000 yuan / ton. high nickel demand for superimposed lithium carbonate caustic lithium hydroxide supply continues to increase, lithium hydroxide price gradually repaired, as of May 13, lithium carbonate-lithium hydroxide price difference repaired to 3200 yuan / ton. 2) there is still a shortage of high-quality lithium resources: the production of lithium carbonate from low-cost salt lake resources has a comparative advantage, and lithium hydroxide products have more stringent requirements for impurity control and product consistency. Lithium hydroxide produced by spodumene one-step method has better performance. We judge that in the future, low-cost South American salt lakes will be mainly used for lithium carbonate production, and spodumene will be used more for the production of high-quality lithium hydroxide (it can be confirmed by the ALB announcement that 80% of salt lake resources will be used to produce lithium carbonate in 2025, and 80% of spodumene resources will be used to produce lithium hydroxide). From the point of view of resources, the intensity of capital expenditure of spodumene mines is lower than that of salt lake enterprises, and Australian mines still have no large-scale production expansion plans. the domestic increments in the next 1-2 years will mainly be Lijiagou Mine, which is owned by Fujie Methyl Card and Chuaneng Power. Lithium concentrate is still in short supply, which leads to a tight supply of high-quality lithium hydroxide.

Core targets: Ganfeng Lithium Industry, Tianqi Lithium Industry, Rongjie Co., Ltd., Ya Hua Group, Yongxing Materials (Iron and Steel Group), etc.

Risk hints: the risk of higher-than-expected release of lithium production, the risk that sales of new energy vehicles are lower than expected, and the profit calculation of lithium salt plants is based on certain assumptions. There is a risk of deviation from the reality, and the public data used in the research report may lag behind or not updated in a timely manner.

First, judgment 1: the expansion of the resource end is slow, and the lithium concentrate continues to be in short supply.

1.1 spodumene: the production capacity of Western Australian mines is clear, and there is no short-term expansion and resumption of large-scale mines.

Since 2018, the price of spodumene has been falling for a long time, falling below US $400 / ton. Therefore, since the second half of 2019, high-cost Western Australian mines began to shut down and reduce production. Alita, Wodgina and Altura mines have been closed successively, and the number of lithium concentrate production enterprises has dropped sharply from 7 to 4.

Western Australia's production mines are operating at full capacity, and short-term capital expenditure is limited. In 2021, the output of Q1 Western Australian lithium concentrate totaled 233100 tons, up 24 per cent from the same period last year and 3 per cent from the previous year; sales totaled 229100 tons, up 22 per cent from the same period last year and down 1 per cent from the previous year.

Marion Mine: 21Q1 produces 109000 tons of lithium concentrate, sales 128000 tons, inventory reduction of 19000 tons, Marion mine capacity is already at full capacity; its Kemerton lithium hydroxide plant is expected to be completed in the second half of 2021, climbing to full production in 2022.

Galaxy:Mt Cattlin21Q1's production of 46588 dry metric tons of lithium concentrate increased by 39.7% month-on-month. A total of 29917 dry metric tons of lithium concentrate were shipped in the quarter. In addition, 15000 dry metric tons of lithium concentrate were delayed to early April due to the late arrival of ships. The CIF price far exceeded US $48000 / dry metric ton. The estimated output in the second quarter is 48000 tons, which is already at full capacity. The annual output of lithium concentrate is expected to be about 18.5-200000 tons. Long orders are expected to be priced at more than $600 per ton in the second quarter. The James Bay spodumene mine in Canada has a design capacity of about 330000 tons of lithium concentrate per year. Synchronize is planned to support downstream lithium salt capacity, which is still in the feasibility stage.

Pilbara:21Q1 has produced a total of 77820 tons of lithium concentrate, which has reached its design capacity, selling a total of 71229 tons of lithium concentrate, and the sales price of some lithium concentrates reached US $655 per ton in April. In January 2021, the company completed the acquisition of the Altura mine and has now carried out shutdown maintenance. The company evaluates whether to restart Altura operations according to market conditions. The company is currently carrying out technical transformation and is expected to increase the production capacity of lithium concentrate by 30,000 to 50,000 tons, and the construction is expected to be completed in September 21. The second phase of the expansion project of the company is still in the feasibility study stage. After the completion of the investment decision, the construction period of the expansion project is expected to be about 9 months.

Wodgina: is still shutting down maintenance and plans to restart mine operations within three years, according to the latest announcement.

Core: owns the Australian Finniss lithium concentrate project (planning a 175000-ton lithium concentrate project). Construction is scheduled to begin in the second half of 2021 and the construction period is expected to be 15 months.

LTR: owns the Australian Kathleen Valley lithium concentrate project. It is expected that Q4 will complete the planned production capacity of 350000 tons of lithium concentrate in 2021. It is planned to start construction of Q3 in 2023 and start production of Q2 in 2025.

Holland:SQM joint venture project, planning 50,000t LCE project (mine-lithium hydroxide integration project), the investment of the project was approved by the board of directors in February 2001.

Domestic lithium deposits are mainly concentrated in Kangding Methyl Card, Delaolongba, Yajiang Cuala spodumene Mine in Ganzi Prefecture, Sichuan Province, and Lijiagou, Markang Dangba and Yelonggou spodumene deposits in Aba Prefecture. At present, only Kangding Methyl Card controlled by Rongjie shares and Yelonggou Lithium Mine under Shengxin Lithium Energy, Yajiang Zola Mine under Tianqi Lithium Industry have not yet been developed, and Markang Dangba, owned by Zhonghe shares, is still in the shutdown stage. the rest of the mines are still in the mine construction stage, and on the whole, no new mine has been put into operation in the past 21 years.

The "ore war" is imminent, and the resource side has become a supply bottleneck. At present, Australia's operating mine resources are basically locked, and the tight supply of lithium concentrate remains unchanged. Talison mainly supplies Tianqi Lithium Industry and Yabao; Marion Mine mainly supplies Ganfeng Lithium Industry; Pilbara mainly supplies Ganfeng Lithium Industry, Tianyi Lithium Industry, Ronghui Lithium Industry, POSCO and Great Wall Automobile; Galaxy is mainly supplied by Japan Minghe Industry, Ya Hua Group, Shengxin Lithium Energy; domestic Yelonggou Lithium Mine mainly supplies Shengxin Lithium Energy, which can be sold only by Rongjie shares of methyl card ore (currently about 450000 tons of raw ore processing capacity, corresponding to about 10, 000 tons of LCE;. In the planning and construction of 2.5 million tons of mineral processing capacity, 1.05 million tons of mining capacity has been built. In addition, the domestic lithium hydroxide project has entered an accelerated production period, which has further expanded the demand for lithium concentrate, and due to the impact of the current international situation, the market is also constantly worried that the supply of Australian ore is tightening, and the price of lithium concentrate may repeat the situation of 17 years. The possibility that the price will reach 900 US dollars per ton cannot be ruled out.

1.2 Salt Lake: reduced capital expenditure and continuous postponement of expansion projects

In 2020, due to the outbreak of the novel coronavirus epidemic, prices continued to fall, the lowest price of lithium carbonate has reached the cost line of South American salt lake projects, and enterprises generally reduce capital expenditure plans, so South American salt lake expansion projects have been continuously delayed:

The Albmarle: 40, 000-ton lithium carbonate expansion project is expected to be completed in mid-2021, followed by a six-month commissioning period and is expected to be released in 2022. Capital expenditure in 21 years is expected to be $8.5 billion to $9.5 million (compared with $8.5 million in the same period last year), and capital expenditure is still not aggressive.

The 50, 000-ton capacity expansion project of SQM:Atacama Salt Lake is expected to be completed and put into production in the second half of 21 years. The total production capacity will reach 120000 tons of LCE (including 21500 tons of lithium hydroxide capacity). It is planned that the production capacity of 2023 will be further expanded to 180000 tons (including 30, 000 tons of lithium hydroxide capacity).

Sal de Vida: plans to produce 32000 tons of LCE, and has completed the preliminary FEED work, which is expected to be completed in October 2022 and will begin climbing in 2023.

Cauchari-Olaroz: plans a 40, 000-ton lithium carbonate project, which was originally scheduled to start production in 2021, but the latest announcement is expected to start production in mid-2022.

Livent: Argentina Salt Lake Phase I lithium carbonate project is postponed to Q1 in 2023, the second phase of the expansion project is expected to be completed in 2023 Q4, and the 5000 ton lithium hydroxide project in the United States is expected to be completed and put into production in 2022. The company expects full-year capital expenditure for 21 years to be about $125 million (the same as in 2020), and the overall capital spending plan is not aggressive.

In terms of domestic salt lakes, only Lanke Lithium Industry 20,000 tons of lithium carbonate project has been put into operation in the short term. At present, some units have been put into operation and the project is expected to be completed in the second half of 21 years.

Second, judgment 2: the prosperity continues to rise, and the price cycle of lithium carbonate is not over.

Since the second half of 2020, the price of domestic lithium salt has continued to rise. The price of battery-grade lithium carbonate has increased by 126% from 3.95 to 89500 yuan per ton, while the price of battery-grade lithium hydroxide has increased by 59% from 3.95 to 83400 yuan per ton. the price of lithium concentrate increased by 56% from 390 to 610 US dollars per ton. According to our estimates, the processing profit of the lithium salt plant that purchased spodumene as raw material has been repaired from a loss to about 30,000 yuan / ton (assuming that the processing cost is about 20,000 yuan / ton). Considering the continuing shortage of lithium concentrate prices, lithium concentrate prices still have room to rise, and lithium carbonate may continue to rise under the support of costs.

The demand for new energy vehicles continues to rise: the first quarter is the off-season for new energy vehicle consumption. According to EV sales, global sales of new energy vehicles were about 1.128 million in the first quarter, an increase of 145% over the same period last year. According to the data disclosed in April, domestic sales of new energy vehicles in April were 206000, a year-on-year increase of 1.8 times, while sales of new energy vehicles in six European countries (Norway, Germany, France, Britain, Sweden and the Netherlands) reached 115500, an increase of 363% over the same period last year.

The driving factor of new energy vehicles has changed from 2B to 2C. From the global sales ranking, in 2020, Tesla sales of 499500 vehicles, accounting for 15.99%, the fashion effect is obvious; traditional car companies accelerate the layout, Volkswagen new energy vehicle market share from 3.81% to 7.05%. The driving force of global new energy vehicle growth has been transformed into an endogenous growth model, and the permeability may accelerate.

Lithium carbonate gradually grew from a small metal to a large metal. According to Alb's estimates, the global demand for lithium carbonate will reach 1 million tons in 2025. Lithium is an irreplaceable raw material for new energy vehicles, and global sales of new energy vehicles continued a high growth trend in April. Therefore, we raised the global sales assumption of new energy vehicles from 2021 to 2023 to 472 Universe 644 / 8.58 million vehicles, and the lithium demand was 41.26,52.80 and 672300 tons respectively, up 33%, 28% and 27% respectively over the same period last year.

Lithium carbonate has been in shortage for 21 years. From 2019 to the first half of 2020, lithium prices continued to fall, and the slowdown in corporate capital expenditure led to the elimination of lithium resources in 21 years, while the new energy vehicle market ushered in explosive growth. Sales of new energy vehicles are expected to grow by more than 50% in 21 years, and the shortage of lithium carbonate market in 21 years remains unchanged. Since April 21, the price of battery-grade lithium carbonate has been maintained at about 90,000 yuan / ton, and the price has been operating steadily as a whole. it is expected that under the catalysis of the peak season of new energy vehicles in the third and fourth quarters, the price is expected to usher in a new round of rise again. Battery-grade lithium carbonate is high this year or break through 120000 yuan / ton, which does not rule out the possibility of going higher further.

Third, judge 3: the price difference between lithium hydroxide and lithium carbonate may continue to be repaired.

The price of lithium hydroxide is gradually repaired. 1) due to the influence of long order pricing and other factors, the price change of lithium hydroxide lags behind that of lithium carbonate. at the highest point, the premium of lithium carbonate relative to lithium hydroxide is about 10, 000 yuan / ton, which is close to an all-time high. at the same time, lithium carbonate manufacturers causticize lithium hydroxide has profit space, lithium hydroxide price gradually repaired, as of May 13, the price difference between lithium carbonate and lithium hydroxide was repaired to 3200 yuan / ton. 2) the demand for high nickel increases steadily, lithium hydroxide manufacturers start work to maintain a high level, orders are saturated, and lithium hydroxide inventory is gradually consumed.

The demand for lithium hydroxide is growing rapidly. High nickel ternary materials require that the sintering temperature should not be higher than 800 ℃. If lithium carbonate is used as raw material, too low sintering temperature will cause incomplete decomposition, lead to excessive alkalinity, enhance sensitivity to humidity, and affect battery performance. therefore, lithium hydroxide must be used as raw material for high nickel ternary materials. We assume that the global sales of new energy vehicles will be 8.58 million in 2023, and the demand for lithium hydroxide is expected to reach 334100 tons in 2023 and 44% in 2020-2023CAGR.

There is still a shortage of high-quality lithium resources. Lithium carbonate produced by low-cost salt lake resources has a comparative advantage, lithium hydroxide products have more stringent requirements for impurity control and product consistency, and lithium hydroxide produced by spodumene one-step method has better performance. We judge that in the future, low-cost South American salt lakes will be mainly used for lithium carbonate production, and spodumene will be used more for the production of high-quality lithium hydroxide. (it can be confirmed from the ALB announcement that 80% of salt lake resources will be used to produce lithium carbonate in 2025, and 80% of spodumene resources will be used to produce lithium hydroxide). From the point of view of resources, the intensity of capital expenditure of spodumene is lower than that of salt lake enterprises, and Australian mines still have no large-scale production expansion plans. the domestic increments are only methyl card, Lijiagou Mine, which is owned by Sichuan Energy Power, and lithium concentrate is still in short supply, which leads to tight supply of high-quality lithium hydroxide.

Risk hint

The risk of lithium production exceeding expectations. The supply of lithium resources is mainly concentrated in spodumene mines in Australia and salt lakes in South America. The low capital expenditure of enterprises at the resource end leads to a shortage of lithium resources. Later, we need to focus on the resumption of production and new production of spodumene mines in Australia. And the impact of the slope climbing progress of the South American salt lake expansion project on the supply side.

The risk that sales of new energy vehicles are lower than expected. New energy vehicles are the main growth area of lithium consumption, and the production of new energy vehicles is gradually increasing. If the sales of electric vehicles are lower than expected, it will have a great impact on lithium demand.

The profit calculation of lithium salt plant is based on certain assumptions, and there is a risk of deviation from the reality. The profit calculation of lithium salt plant assumes that the purchased lithium concentrate is used as raw material, and the processing fee is assumed to be the average level of the industry, which is at risk of deviation from the actual profit of lithium salt plant.

The public information used in the research report may be at risk of lagging behind or not updating in a timely manner. In the research report, the company and industry information are collated and analyzed by using public data, and there is a risk of lag in updating the relevant data.