The electrolyte industry is facing the bottom of the cycle, and leading enterprises are taking the initiative to control production, reduce costs, and go overseas

　Recently, the China Association of Automobile Manufacturers released the production and sales data of China's automobile market in the first quarter of 2024, of which the production and sales of new energy vehicles were 2.115 million and 2.09 million respectively, an increase of 28.2% and 31.8% year-on-year respectively, and the market share reached 31.1%. Since the beginning of 2024, the domestic new energy vehicle market has become more and more popular, and car companies have also launched a "price war" to enter the white-hot competition, and the price reduction pressure of new energy vehicles is also being transmitted to the lithium battery industry in the upstream of the new energy industry chain.

　　In the past three years, the electrolyte industry has experienced a drastic "polar reversal", just in 2022, many electrolyte companies ushered in a big explosion of performance, and since 2023, the price decline of raw materials and finished products, overcapacity, and profitability have become the epitome of the entire electrolyte market. Looking forward to the first half of 2024, the operating performance of electrolyte companies seems to be difficult to improve.

　　Overcapacity, the electrolyte industry has entered a historic bottom

　　Over the past three years, the electrolyte industry has experienced a dramatic rollercoaster ride.

　　In 2021, the domestic new energy vehicle industry will enter a period of development, the demand for power batteries will grow sharply, and the lithium battery material market will be the first to break out, among which the electrolyte material will increase most obviously.

　　At the beginning of 2021, the price of lithium carbonate, the raw material of electrolyte, was only 5-60,000 yuan/ton, and in 2022, the price of lithium carbonate once exceeded 600,000 yuan/ton, and the price of lithium hexafluorophosphate, the core material, rose from 110,000 yuan/ton in 2021 to the highest 590,000 yuan/ton at the beginning of 2022.

　　In 2023, with the launch of new lithium hexafluorophosphate production capacity, the downstream market has returned to calm, the supply and demand relationship of the lithium battery market has gradually reversed, the electrolyte production capacity has gradually become excessive, and the price of lithium hexafluorophosphate has continued to fall from its high point, with the average spot price in 2023 being about 128,000 yuan/ton, down 63.7% year-on-year from the average spot price in 2022, with a steep downward trend.

　　Compared with the market highs in 2022, the performance of the top electrolyte manufacturers in 2023 has also declined to varying degrees: Tianci Materials' annual net profit in 2023 will be 1.842 billion yuan, down 68.48% year-on-year, Capchem's annual net profit will be 1.011 billion yuan, down 44.55% year-on-year, Polyfluorine's annual net profit will be 641 million yuan, down 68.32% year-on-year, and Tianji's annual net profit will be 36.9792 million yuan, down 92.64% year-on-year.

　　Entering the first quarter of 2024, the price of lithium hexafluorophosphate has once again fallen to a historic bottom. According to Soochow Securities tracking market conditions, in early March, the price of lithium hexafluorophosphate has fallen below 60,000 yuan/ton, and it is expected that the profit echelon of hexafluorine manufacturers will be further differentiated, and the leading cost advantage will ensure that profits can be maintained after bottoming out.

　　Competition intensified, and manufacturers took the initiative to take measures to control production and raise prices

　　Since 2024, the pressure on the electrolyte industry at the other end of the spectrum has come from downstream. At present, the lithium battery industry is still in the stage of cost reduction and inventory, and for the electrolyte industry located in the upstream raw material link, the pressure of downstream procurement cost reduction has increased, and the price competition within the industry has become more intense.

　　As the price of lithium hexafluorophosphate fell to the bottom, the momentum of suspension of production and clearance is becoming more and more obvious for new entrants and backward production capacity manufacturers who do not have cost advantages. In contrast, leading enterprises have taken the initiative to gradually slow down the investment and construction of new production capacity by virtue of supply chain costs and the advantages of large customers, so as to support product prices and ensure their own profitability while ensuring competitive advantages.

　　In June 2023, Polyfluoride announced that the "Key Materials Project with an Annual Output of 100,000 Tons of Lithium-ion Battery Electrolyte", which originally planned to raise 4.4 billion yuan, was reduced to only 1.5 billion yuan, and in November of the same year, Capchem announced that it would terminate the construction of the Zhuhai Capchem Electronic Chemicals Project with a total investment of about 1.2 billion yuan, in order to concentrate resources on the construction of Huizhou Capchem Phase IV Electronic Chemicals Project.

　　On March 9, 2024, Tianci Materials announced that it plans to start the shutdown and maintenance of the production line with an annual output of 30,000 tons of liquid lithium hexafluorophosphate on March 11, 2024, and the maintenance time is expected to be no more than 30 days. According to the analysis of industry insiders, this routine maintenance is conducive to improving the market supply and demand of lithium hexafluorophosphate in the short term, and the price of lithium hexafluorophosphate is expected to receive some support.

　　In the short term, the reduction and expansion of the electrolyte industry may continue. Since the beginning of 2023, the electrolyte industry has entered a state of slow expansion of production reduction, according to WIND data, the capital expenditure of major lithium hexafluorophosphate enterprises in 2023 has weakened significantly, and the capital expenditure of leading enterprises in the fourth quarter of 2022 reached nearly 2.5 billion yuan and began to decline quarter by quarter, and has fallen below 1.5 billion yuan in the third quarter of 2023. From the perspective of capacity increase and operating rate, the electrolyte industry may still be in the process of "reshuffling" in 2024. According to the research of Soochow Securities, the expansion of the electrolyte industry will slow down significantly in 2024, and the leading manufacturers are expected to add only 10,000 tons of production capacity, and from the perspective of supply and demand of the whole industry, the capacity utilization rate of the industry will be about 70% in 2024, and the capacity utilization rate is expected to recover in 2025.

　　Looking for opportunities at the bottom, the Matthew effect of the industry drives the leader through the cycle

　　Under the general trend of backward production capacity gradually clearing, the market concentration rate of the electrolyte industry is accelerating.

　　In 2023, the share of electrolyte CR4 will reach 72.8%, an increase of 2.3 percentage points year-on-year, of which Tianci materials will account for 36.4%, an increase of 0.6 percentage points year-on-year, ranking first in the industry, followed by Capchem, occupying 15.1% of the market share, an increase of 1.8 percentage points year-on-year, and the Matthew effect in the industry is more prominent.

　　Pacific Securities also said that it is optimistic that the leading electrolyte companies can pass through the industry cycle. In the historical cycle of electrolyte, the key to the growth of enterprises through the cycle is to reduce costs through the integrated layout and bind the head customers to increase market share, and the same is true in the new cycle.

　　It is worth noting that in the face of the bottom of the electrolyte industry cycle, the leading enterprises in the industry are still actively exploring overseas market opportunities, and there are fewer electrolyte companies with overseas construction capabilities in China.

　　At present, the leading companies Tianci Materials and Capchem have made preparations overseas. In addition to the electrolyte, Morocco also considers lithium hexafluorophosphate supporting materials and cathode materials to form a by-product recycling with other local manufacturers, and Germany supplies in batches in the form of OEM to accelerate the layout of overseas markets; Capchem has officially put into production a lithium-ion battery electrolyte project in Poland, and has planned a solvent project in Western Europe and plans to build a factory in Ohio, USA.

　　Although the trend of grinding the bottom of the electrolyte industry in 2024 is still relatively obvious, and it is difficult for enterprises to obtain excess profits, with the easing of the problem of overcapacity in the industry in the future and the accelerated penetration of the international new energy vehicle market, the electrolyte industry is still expected to usher in a new round of upward cycle.