Text | Xie Zefeng
Edit | Yang Xuran
The announcement of an industry document has detonated a rising tide of lithium stocks.
On May 8, the Ministry of Industry and Information Technology issued a draft for the regulation of the lithium battery industry and the announcement of the management measures (draft for comments), which pointed out that it is necessary to guide enterprises to "reduce the simple expansion of production capacity" projects, which is called the "supply-side reform" of the lithium battery industry.
Driven by the new energy vehicle industry, the lithium battery industry chain has just experienced a round of explosive cycle evolution. Downstream sales are hot, midstream batteries are in short supply, and the upstream is "holding lithium as king", and there is even a situation of "vehicle companies working for battery companies, and battery companies working for lithium mining enterprises".
However, this situation did not last long, with the frantic expansion of lithium mines-battery companies, power batteries from "undersupply" to "oversupply", overcapacity intensified.
The domestic lithium carbonate price fell from a historical high of 600,000 yuan/ton all the way below the 90,000 yuan/ton mark, and is currently maintained at about 110,000 yuan/ton, basically returning to the level of 2021.
It is usually difficult to judge how long the trough of the cyclical industry will last, but now some people have chosen to buck the trend. On the evening of May 7, lithium mining leader Ganfeng Lithium planned to increase its overseas spodumene mine project by 2.5 billion yuan, which was seen by the outside world as a sign of the reversal of the lithium cycle.
At present, many institutions predict that lithium carbonate will still be in excess of demand in 2025, and the price will not recover until after 2025. However, the decision-making of industry participants, especially those who are important participants, is actually more important in judging the industry cycle.
At present, a number of overseas lithium mine projects have announced suspension or reduction of production, and with the acceleration of production capacity clearance, the time node for the industry to get out of the bottom of the cycle seems to be gradually approaching. The cycle repeats, but it doesn't simply repeat itself
01 Bucking the trend
Due to the rapid decline in lithium prices, in the first quarter of this year, lithium mining companies changed from "Britney" to "Mrs. Niu".
Of the 19 A-share listed companies in the lithium mining sector, 6 of them had a net profit loss. Tianqi Lithium suffered a sharp loss of 3.897 billion yuan in the first quarter due to the ruling on a tax lawsuit involving the Chilean chemical mining company (SQM) in which it has a stake, as well as a sharp decline in gross profit of products. Ganfeng Lithium and Shengxin Lithium Energy were not spared, with losses of 439 million and 144 million yuan respectively.
However, Tianqi Lithium's performance loss did not affect the rhythm of Ganfeng Lithium's mine purchase. According to the announcement on May 7, Ganfeng International plans to spend US$342.7 million (about 2.5 billion yuan) to acquire the remaining 40% stake in Mali Lithium from Leo Lithium to obtain the full management rights of the Goulamina spodumene project.
Mali Lithium was established as a joint venture between Leo Lithium and Ganfeng International to develop the Goulamina spodumene mine in southern Mali, Africa. The mine has 211 million tonnes of lithium ore and an estimated total of 2.89 million tonnes of lithium oxide, equivalent to about 7.14 million tonnes of lithium carbonate equivalent.
Ganfeng Lithium has twice increased its capital by a total of 203 million US dollars (about 1.5 billion yuan) to buy 60% of the equity of Mali Lithium, and with this acquisition, it is expected to cost 4 billion yuan to take 100% ownership of this spodumene mine project, which shows Ganfeng Lithium's determination to the project.
In addition, since the beginning of this year, Ganfeng Lithium has also strengthened its cooperation with Australian lithium producer Pilbara; It is proposed to subscribe for additional shares of PGCO, an Argentine mineral exploration company, for no more than US$70 million; Signed a large deal with Pilbar, which will increase spodumene supply to Ganfeng Lithium from 160,000 tonnes per annum to 310,000 tonnes per annum over the next three years.
It can be seen that Ganfeng Lithium, which is at a low point in the industry, is trying to continue to consolidate its resources in order to distance itself from competitors. At present, the company has lithium resources in Argentina's salt lakes, spodumene resources in Australia, Mali, Ireland and other places, and lithium clay resources in Mexico, with a total equity resource of 48.08 million tons of LCE (lithium carbonate equivalent), second only to SQM and second in the world.
On the other hand, increasing the amount of self-owned resources is more conducive to integrated production, reducing development costs, and strengthening the ability to resist fluctuation risks.
Ganfeng Lithium is the only company in the world that has both brine lithium extraction, ore lithium extraction and recovery lithium extraction, which runs through upstream development, midstream lithium salt and lithium metal smelting, and downstream battery manufacturing and recycling.
Moreover, strengthening the equity ratio, especially wholly-owned ownership, can greatly improve the ability to ensure the supply of resources, while reducing overseas legal risks.
Tianqi Lithium's performance fluctuates so drastically, attributed to the two major overseas mining companies. On the one hand, although Tianqi Lithium owns 22.16% of the equity of SQM, it is its second largest shareholder, but it only enjoys the right to share appreciation and dividends through equity participation, and has no actual control.
Tianqi Lithium is not only losing money due to past tax issues, but is also likely to lose revenue from the world's largest salt lake Atacama project due to SQM's current "public-private partnership" plan, which is undoubtedly a major blow to Tianqi Lithium.
On the other hand, the acquired Wenfield lithium mine, because of its quarterly pricing, resulting in the cost of raw materials far exceeding the selling price of the product, Tianqi Lithium purchased lithium ore for smelting, but "flour is more expensive than bread" caused the cost of smelting to soar, and became a wage earner for overseas subsidiaries.
All of this is related to its lack of control over overseas companies, so Ganfeng Lithium wants to acquire 100% of Mali minerals, which is also the meaning of the topic.
02 Mismatch between supply and demand
Lithium is seen as the "white oil" of the next era, and once there is a development bottleneck, it will affect the energy lifeline of a country.
In the past three years, due to the surge in downstream new energy vehicle sales, the price of upstream lithium mines has fluctuated at an epic level, which has profoundly affected the lithium industry chain.
It can be said that supply and demand are the basis for influencing the price trend of lithium mines. Starting in 2023, due to the crazy influx of capital in the early stage, lithium carbonate production capacity will be released rapidly, but the downstream demand has not shown a trend of synchronous expansion, resulting in a situation of "oversupply" in all industrial chains. Lithium prices have been falling, with little resistance.
Taking power batteries as an example, data from the Ministry of Industry and Information Technology shows that the total output of lithium batteries in China will exceed 940GWh in 2023, a year-on-year increase of 25%; The power output is 675GWh, but the installed capacity (including new energy vehicles and new energy storage) is only 435GWh, so the overcapacity rate is about 36%.
According to the statistics of Industrial Securities Futures, the global lithium carbonate production capacity in 2023 will be 1.017 million tons, and the actual demand will be 972,000 tons, with a surplus of 45,000 tons.
At present, there is a consensus expectation of the situation of "oversupply" in the next two years, Antaike, Soochow Securities, Industrial Securities Futures, etc., believe that the slowdown in demand growth of the lithium battery industry in 2024 is a high probability event, and the excess of lithium resources is about 20-250,000 tons of LCE, and the surplus will even increase further in 2025.
On the demand side, new energy vehicles and energy storage account for 70% of lithium resource consumption, which are the two areas with the largest demand for lithium ore.
In 2023, the penetration rate of new energy vehicles in mainland China has exceeded 30%, and the slowdown in growth is considered reasonable and necessary. In the past April, the sales of new energy vehicles were 850,000, a year-on-year increase of 33.5%; From January to April, sales reached 2.94 million units, a year-on-year increase of 32.3%, and the penetration rate rose to 32.4%. However, the growth rate was 5.5 percentage points lower than last year.
Energy storage is still in a stage of rapid growth, last year, China's energy storage lithium battery shipments were 206GWh, a year-on-year increase of 58%, but because it accounted for less than 20% of the entire lithium battery application, it could not drive a large-scale explosion of lithium resource demand in the short term.
In addition, mainland lithium salt companies are highly dependent on imports, and the cycle of ore settlement mechanism has a lag, resulting in the price decline of ore far less than the downward speed of lithium salt prices, which is why Tianqi Lithium has a situation of "working" for its subsidiary Winfield.
At present, 40% of lithium carbonate enterprises in mainland China purchase Australian and non-mineral mines, and most of them have not opened up the integrated layout, and the upstream development cost has a great impact on performance. In contrast, the cost of self-owned lithium mining enterprises is much lower than that of external mining.
Therefore, building the integration of the industrial chain and strengthening the resource self-sufficiency rate are the two axes for lithium mining enterprises to improve their ability to resist risks. Of all the world's lithium resources, salt lakes are the most dominant form, and the cost of extracting lithium from salt lakes is also the lowest.
Ganfeng Lithium's Cauchari-Olaroz salt lake project is the world's lowest-cost lithium extraction project, with a cost of only about 40,000 yuan/ton.
The fully self-sufficient first phase of 40,000 tonnes of lithium carbonate was put into production in the middle of last year.
Different costs also lead to different performance of enterprises in the face of the same industry downward cycle, some companies have resilient performance, but some companies are hot and cold, and the fluctuations are drastic.
03 It won't be repeated
Supply and demand are the basis for influencing the course of the lithium cycle, but supply and demand themselves are in constant flux:
On the demand side, it is affected by the new energy stimulus policies of various countries, oil price fluctuations, charging piles and other infrastructure; On the supply side, major miners will also shrink or expand according to their own judgment.
The cycle repeats, but history never repeats itself.
The lithium carbonate industry has experienced two rounds of bull and bear baptism, and it is difficult for the market to get rid of the inherent cognition of the previous cycle. The judgment of lithium resource supply should not only stay in the quantitative dimension, but also the result, and more importantly, the decision made by entrepreneurs and miners at the micro level on the judgment of industrial trends.
Since the end of last year, more and more mines have been "insured" by suspending production/reducing production.
澳洲锂矿山MtFiniss 宣布减产,并暂停远期资本开支、且暂停原矿开采;Greenbushes将产量缩减10-20万吨; Cattlin下修今年销量指引,Core Lithium暂停了芬尼斯锂矿的采矿作业。
Albemarle, the largest lithium operator, plans to sell its stake in Liontown Resources and abandon the construction of a fourth lithium processing line in Western Australia. Core's main customers include Tesla, Yahua Group and Ganfeng Lithium. Liontown Resources is one of Australia's largest lithium operators and a significant supplier to Tesla and Ford.
Australia is currently the world's largest source of lithium resources, supplying 47% of the world's lithium ore and 55% of China's lithium mines. The decisions of Australian miners largely influence the cyclical trend of the industry.
Unlike manufacturing, the essence of lithium carbonate is mining. Similar to SaaS companies, mining investment requires a large amount of capital investment in the early stage, but there is no real cash inflow, and the cash on hand for new projects is relatively tight, and players hope to force competitors to retreat by "burning money", forcing opponents to clear out in order to seek a cycle reversal.
However, in the current industrial environment, due to the relative slowdown in downstream demand, the average price of Australian concentrate has fallen to US$990/ton, and then settled in M+1, the actual transaction price may be lower.
In the long run, there is still huge space for the new energy industry, but in the short term, it will test the strategic wisdom of participants. China's lithium carbonate resources account for only 6% of the world's total, and the scarce resources are irreproducible, so it is the general trend for Chinese-funded enterprises to "go global" to obtain high-quality and low-cost lithium mines (mainly salt lakes).
This is why, Ganfeng Lithium will firmly believe that no matter what the market price is, the company will still have to produce normally, and even bravely bet on continuing to buy mines overseas - ensuring the supply of raw materials is the top priority.
In the context of Australian miners reducing production and multinational giants reducing capital expenditures, the current round of lithium mine clearance cycle has quietly opened, although lithium carbonate prices are still dormant at the bottom, but the reversal cycle may come earlier than expected.
04 Write at the end
"Lithium salt had 600,000 yuan a ton yesterday, and there may be 100,000 yuan a ton tomorrow."
For the current trough, Li Liangbin has long expected that the current expansion deployment should also be part of the plan.
Ganfeng Lithium is the world's third largest producer of lithium compounds, second only to Albemarle and SQM, the logic of investment comes from the battle between winning rate and odds, the focus of the reverse layout of lithium mines is the odds, and the current lithium price has reached the bottom range.
Increasing positions against the trend is not only a full preparation or even an active bet on the next round of the cycle at the enterprise level, but also a national guarantee to ensure the security of lithium supply at the industry level.