(Image is AI-generated)
In 2023, the boom and bust of the lithium cycle will change rapidly, and the upstream links will be impacted, and the 2023 annual reports will announce a sharp decline in the profitability of the lithium salt business of lithium companies, and none of them will be spared.
However, the annual reports of 17 listed lithium companies found that the impact of lithium prices on the industry such as the sudden drop of eighty percent and oversupply during the year is irreversible, but due to the differences in resource endowment, lithium extraction methods, lithium mine self-sufficiency rate, business structure, etc., the impact of the downward cycle on various enterprises is different.
Warren Buffett once said, "When the tide is low, you know who is swimming naked." Through the performance, gross profit margin, selling price, cost and other data of lithium enterprises in 2023, it is once again verified that the cost of the lithium salt industry is king, 000792 and the remainder is king. SZ), Zangge Mining (000408. SZ), Yongxing Materials (002756. SZ) is obviously more transcyclical.
The downward cycle has indiscriminately impacted lithium companies
This prospect is a significant expansion during the gas cycle, which is quickly realized as an expansion of domestic lithium salt production capacity. In the past year, there was an imbalance between supply and demand in the lithium salt market, and the capacity utilization rate was less than half of it.
According to the data of the Lithium Branch of the China Nonferrous Metals Industry Association, in 2023, the lithium carbonate production capacity will be 1.1 million tons, a year-on-year increase of 83.3%, but the output will only be 517,900 tons, an increase of only 31.1% year-on-year, and the lithium hydroxide production capacity will be 700,000 tons, a year-on-year increase of 94.4%, and the output will only be 319,600 tons, an increase of 30.1%.
(Domestic lithium salt production capacity and utilization rate, source: Sinomine Resources 2023 annual report)
The direct consequence of oversupply is that prices plummet. The price of lithium carbonate fell from about 500,000 yuan/ton at the beginning of the year to about 100,000 yuan/ton at the end of the year, indiscriminately impacting all lithium enterprises.
(Source: Tianhua Super Clean 2023 Annual Report)
According to wind data, Titanium Media APP sorted out 17 lithium companies with lithium salt-related business/revenue, during which 14 disclosed the gross profit margin of lithium salt business. Among them, the gross profit margin of lithium salt in 13 companies declined, and only Sinomine Resources (002738. SZ) increased slightly by 3.99% year-on-year.
Focusing on performance, in 2023, 14 companies will have a decline in revenue and 16 companies will decline in profit, and the decline rate will vary among them. Among them, Jinyuan shares (000546. SZ), Jixiang shares (603399. SH), Jiangte Motor (002176. SZ) suffered a loss, with net profit attributable to the parent company of -678 million yuan, -337 million yuan and -397 million yuan respectively.
It should be noted that Tianqi Lithium (002466. SZ), Western Mining (601168. SH), Jixiang shares' revenue increased year-on-year, but the lithium salt business of the three companies accounted for a small proportion, Tianqi Lithium's lithium salt business accounted for 32.81%, and the majority of the performance contribution was lithium mine income; Western Mining mainly held 6.29% of the equity of Taifeng Xianxing, the controlling shareholder of Dongtai Lithium Resources, and related income; Jixiang shares' lithium salt business revenue accounted for 23.90%, which was supported by molybdenum income.
Sichuan Energy Power's net profit attributable to the parent company last year was 797 million yuan, a year-on-year increase of 12.35%, and it was the only lithium company with profit growth. This is mainly because its lithium salt business accounts for only 24.37%, and its lithium salt business is mainly processed on behalf of others, which is limited by market prices. The company's processing business customers include Tianqi Lithium, Albemarle and other leading companies, this business model is mainly to earn processing fees, and the company itself does not bear the risk of price fluctuations of lithium mines and lithium salts, making the company's performance relatively stable. At the same time, Sichuan Energy Power's wind power business maintained a sustained and steady business development trend, smoothing the impact of the decline in lithium prices on the company.
Cost is king
Although there is almost no difference in the downward cycle, the gross profit margin of lithium salt of listed companies has declined, but in fact, the gross profit margin of lithium enterprises varies greatly, with 80.51% of Zangge Mining and 5.62% of Yahua Group (002497. SZ), and even Jiangte Motor, Jixiang Shares, Rongjie Shares (002192. SZ) was directly negative.
The key is the cost.
According to the rough estimation of lithium salt revenue, cost and sales volume disclosed in the annual reports of various enterprises, even if the lowest lithium salt ton price last year fell to more than 80,000 yuan, Zangge Mining, Tianqi Lithium, Salt Lake Co., Ltd., Yongxing Materials and other low-cost enterprises still have room for profit;
Taking the lowest-cost salt lake lithium extraction as an example, Zangge Mining will achieve a lithium salt income of 1.980 billion yuan in 2023, a cost of 386 million yuan, and a sales volume of 10,300 tons, resulting in an average price of 192,200 yuan/ton, an average cost of only 37,500 yuan/ton, and its gross profit margin is still as high as 80.51%, which is outstanding.
Salt Lake shares are not worried about making too many concessions, selling 37,600 tons of lithium salt throughout the year, achieving an income of 6.361 billion yuan, with an average selling price of 169,200 yuan/ton, but the cost is only 1.752 billion yuan, roughly calculated, the cost of lithium salt tonnage is only 46,500 yuan/ton, and the gross profit margin has reached 72.45%.
It should be noted that the change in the gross profit margin of lithium salt is also strongly related to the self-sufficiency rate of its lithium ore resources, and enterprises with high self-sufficiency rates such as Tianqi Lithium, Yongxing Materials, and Sinomine Resources have a small fluctuation in the gross profit margin of lithium salts, while Shengxin Lithium Energy (002240. SZ), Yahua Group and other raw materials mainly rely on external mining enterprises, squeezed by both cost and selling price, lithium salt gross profit margin fell sharply.
The most typical is Sinomine Resources, which completed the construction and reconstruction and expansion of its own mine Bikita in Zimbabwe in July last year and started trial production, and reached production standards by November. The two projects have an annual output of about 300,000 tons of spodumene concentrate and 300,000 tons of chemical-grade perpetalite feldspar concentrate respectively, and the raw material self-sufficiency rate of the company's lithium salt sector continues to increase, from 21% in 2022 to 86% in 2023.
In 2023, the output of lithium salt of Sinomine Resources will be 18,394.43 tons, the sales volume will be 17,407.24 tons, the average selling price will be 243,900 yuan/ton, the cost will be 103,000 yuan/ton, and the gross profit margin of lithium salt will reach 57.78%, an increase of 3.99% year-on-year. With the blessing of the lithium salt business outperforming its peers, Sinomine Resources recorded a profit of 2.208 billion yuan last year, a year-on-year decrease of 32.98%, a small decline among all 17 lithium companies, second only to Western Mining and Sichuan Energy Power, and is already a member of the echelon with the most outstanding performance in the downward cycle.
Relatively speaking, Yahua Group, which mainly relies on external lithium concentrate processing and then selling lithium salts, has not had such a good time. In 2023, the company's lithium business will be affected by the rise in lithium concentrate, with the current cost increasing by 37.16%, and the revenue will decrease by 26.15% due to the decline in lithium hydroxide prices, which will lead to a sharp decrease of 43.56% to 5.62% in the company's lithium salt gross profit margin, which is close to the breakeven line. At the same time, in the context of the systematic decline in the prices of lithium concentrate and lithium salt, the book value of the company's products, inventory commodities and issued commodities has also decreased to varying degrees, and at the end of 2023, the company's inventory price decline reserve has also reached 1.161 billion yuan.
Of course, Yahua Group is also trying to improve its self-sufficiency rate. According to the disclosure of the annual report, "the company began to get involved in lithium mining business in 2022, and in 2023, it will carry out lithium exploration, mine construction and raw ore selection and other businesses, and the current mining project is the Kamativi lithium mine in Zimbabwe." The first phase of the project has been completed in just over a year, and the first batch of lithium concentrate has been shipped back to China in 2024, and with the completion and commissioning of the second phase of the project in 2024, it will achieve an annual supply of more than 350,000 tons of self-controlled lithium concentrate, with a self-sufficiency rate of more than 60%. ”
The remnant is king
In 2024, although lithium prices rebounded in the first quarter, they remained generally sluggish. According to wind data statistics, the average price of domestic battery-grade lithium carbonate rebounded from 96,900 yuan per ton to 109,600 yuan in the first quarter, with a quarterly average price of 101,600 yuan and an average price of 402,700 yuan in the same period last year.
In this context, the performance of lithium companies in the first quarter will naturally not be good, including Tianqi Lithium, Jiangte Motor, Shengxin Lithium Energy, Ganfeng Lithium, etc., all suffered losses in the first quarter, while the net profit attributable to the parent company of Yahua Group and Sinomine Resources fell by 97.48% and 76.63% respectively.
According to a rough estimate of the cost per ton in 2023, at least half or even more of the lithium salt business of listed companies will lose money at the lithium salt price level in the first quarter, not to mention some unlisted small and medium-sized enterprises. According to the titanium media APP, in Yichun, Jiangxi, the "lithium capital of Asia", there are many lithium mines, lithium salt processing plants and traders who have reduced or stopped production due to low lithium prices. After all, although Jiangxi mica lithium ore is rich in reserves, the overall grade is low, and the mining and extraction costs are high. According to some estimates, the profit and loss point of mica lithium extraction enterprises is generally 250,000 yuan/ton (lithium carbonate price).
Since April, lithium prices have remained in a narrow range. According to the data of the business community, on April 30, the average domestic blended price of industrial-grade lithium carbonate was 108,400 yuan/ton, an increase of 1.31% compared with the average price of 107,000 yuan/ton on April 1, and the average domestic blended price of battery-grade lithium carbonate was 115,400 yuan/ton, a decrease of 0.52% compared with the average price of 116,000 yuan/ton on April 1.
Although lithium prices have rebounded since the beginning of the year, many industry insiders have expressed a convergent view to Titanium Media APP: in 2024, lithium prices will most likely continue to "grind the bottom" and maintain the situation of oversupply.
The relevant person in charge of a lithium salt enterprise said to the titanium media APP, "From the perspective of the mine end, there will still be profit margins in 2024, and there is a high probability that it will maintain stable production and even growth, South American salt lakes have the potential to contribute to the increment, and African lithium resources will enter the supply cashing time, that is, the capital expenditure that stimulated the expansion of the previous lithium price upward cycle will be realized this year and next year, and the supply will be released." On the demand side, at present, the middle and downstream manufacturers generally maintain low inventory operation, and it is the industry consensus that the growth rate of new energy vehicles will slow down in the future. Therefore, it is expected that the upside of lithium prices will not be too large in the future. ”
Zhang Weixin, an analyst at China Securities Construction Investment Futures, pointed out that the main contradiction in the current lithium carbonate market is the expected change in supply and demand. Although the market has optimistic expectations for terminal demand such as new energy, and the price war for new energy vehicles continues, the possibility of new energy vehicles exceeding expectations in 2024 is rising, but the supply also has high growth potential this year. As a result, lithium carbonate does not receive significant upside support on the back of an optimistic outlook. On the other hand, the current lithium carbonate price further decline can only come from the industry, but in the short term, there is no obvious excess pressure on the spot side, and the supply release is expected to slow down, so the downward momentum is insufficient.
This means that lithium companies will still operate at the bottom of the cycle in the short and medium term, and the industry reshuffle will become inevitable. (This article was first published in Titanium Media APP, author|Su Qitao)