Analysis report on lithium industry

1. Analysis of the rise in lithium prices
2. Factors affecting the current rise in lithium prices
   1. Industrial chain inventory
   2. Competition in the power battery industry intensifies
   3. The trend of over-purchasing in the midstream continues
3. Market analysis of important lithium industry
   1. Australian lithium mine
   2. African lithium mine
   3. Chinese lithium mine
4. Balance of supply and demand in lithium industry
5. Unilateral downward pressure on lithium prices eased

According to the data, it is expected that the supply and demand pattern of the lithium industry will improve in 2023, and the pressure of excess supply will increase in 2024. Stimulated by high lithium prices, the expansion of supply-side production continues to accelerate, and the world’s new lithium supply will reach 400,000 tons in 2023. In 2023, due to the small surplus ratio, lithium prices may remain above 300,000 RMB/ton.

1. Analysis of the rise in lithium prices

1. The higher-than-expected demand growth is the main reason for  lithium price rises. Consumption has grown significantly, but the growth rate of the supply side has not been able to keep up quickly, resulting in a serious mismatch between supply and demand in the industry, causing lithium price to rise.
2. The asynchronous expansion of production in each link of the industrial chain is an important reason for the rise in lithium prices. The main driving factor for the rise in lithium price is that in 2017, the expansion rate of midstream cathode material companies was faster than that of upstream lithium production companies, and there was a significant demand amplification effect.
   The cathode materials for lithium batteries about high nickel ternary are also developing quite quick. And we can check high nickel ternary cathode article to have a look.

With the gradual expansion of production of midstream cathode  material companies and battery companies, the same situation occurs again. The growth rate of lithium supply still lags that of downstream demand, resulting in lithium prices continuing to rise. Three factors for the fall in lithium prices: slowing demand growth, severe oversupply, and companies taking the initiative to cut prices.

2. Factors affecting the current rise in lithium prices

The surge in the price of lithium industry concentrate has greatly raised the cost of  products in China, strengthening the market’s confidence in the continued rise of lithium prices. Low-priced imported supplies have repeatedly affected the operation of Chinese lithium prices. Due to the high import volume of lithium carbonate, and the price of imported products is significantly lower than that of China.

The price of lithium industry in China has been suppressed by imported lithium carbonate products, and there are signs of a slowdown in price increases. The price of imported lithium carbonate has risen rapidly, weakening the pressure on Chinese lithium price.

1. Industrial chain inventory

Since 2022, there has been significant overproduction in the battery sector. According to the data, before 2022, the ratio of power battery production to vehicle loading will be stable at 140%-150%. The fact that the output is higher than the loading capacity is due to the fact that the output includes the export part, and it is also a reflection of the production and sales cycle of the company, that is, the company will produce and stock up in advance according to future battery orders.

Since 2022, this value has increased significantly to 200%, which reflects that the gap between production and vehicle loading has widened significantly, stimulated by the continued improvement of downstream demand. At the same time, this phenomenon is also affected by the rise in lithium prices, that is, companies tend to purchase lithium raw materials and produce batteries in advance in the process of price increases, in order to enjoy the profits brought by later price increases.

2. Competition in the power battery industry intensifies

Chinese power battery companies maintain a rapid pace of production expansion, and the industry competition pattern is more aggressive. With the continuous growth of the new energy vehicle market, more second-tier power battery manufacturers have won orders from downstream car companies, which in turn has increased the proportion of installed capacity. In the context of companies competing for market share, power battery companies have more aggressive procurement strategies for cathode materials and lithium raw materials. 

3. The trend of over-purchasing in the midstream continues

The consumption of lithium industry in different links of the industrial chain is quite different. The inventory level of cathode materials cannot be ignored. By calculating the lithium consumption of each link, the output of raw materials in China in 2021 is roughly the same as the consumption of lithium industry by cathode materials, indicating that lithium production enterprises have basically achieved full production and full sales, and the inventory level is at an extremely low level.

3. Market analysis of important lithium industry

1. Australian lithium mine

In 2023, the increase in the effective supply of lithium concentrate in Australia is expected to exceed 100,000 tons. From 2022 onwards, the expansion rate  concentrate capacity in Australia has accelerated significantly. Except for the Mt Cattlin lithium mine owned by Allkem, all other lithium industry producers have plans to expand their production capacity. Together with the Finniss lithium project, which is scheduled to be put into operation at the end of 2022, it is expected to reach 2022.

By the end of the year, the nominal production capacity of lithium industry concentrate in Australia will reach 3.88 million tons, an increase of nearly 1.5 million tons from the end of 2021. Australian lithium industry concentrate will continue to be the most important support factor for lithium prices. The combination of Australian lithium mines and Chinese lithium industry conversion capacity is currently the most efficient lithium supply model.

2. African lithium mine

The production of lithium mines in Africa will help ease the raw material anxiety of Chinese companies. Africa is expected to become the most important supplier of lithium industry for Chinese companies after Australia. At present, many companies including China Mining Resources, Huayou Cobalt Industry, Ganfeng Lithium industry, Tianhua Ultra Clean and other companies have deployed lithium ore resources in Africa.

Unlike Australian lithium mines, Chinese companies have majority stakes in lithium mine projects in Africa. The peak period of lithium mine energy release in Africa is expected in 2024. The substantial growth of lithium mine capacity in Africa needs to wait for the completion and operation of world-class lithium mine projects such as Ganfeng Lithium’s Goulamina project, Huayou Cobalt’s Arcadia project and Manono project. Capacity contribution, 2024 will also become the first peak period for lithium mine capacity growth in Africa.

3. Chinese lithium mine

The development of lithium mines in China is still slow. With the rise in lithium price, the development progress of Chinese spodumene mines is accelerating. However, due to factors such as the complex ownership of mines and the long approval process for licenses required to start construction, the construction progress of Chinese lithium mines will be relatively slow. Helps to ease the tension of lithium supply.

4. Balance of supply and demand in lithium industry

The supply shortage of lithium industry is expected to ease in 2023, and the pressure of excess supply of lithium industry is expected to increase in 2024. In 2023, the world’s lithium supply will usher in rapid growth. The new supply in the whole year will exceed 400,000 tons, with a year-on-year growth rate of 50%. The reasons for the new supply include the continuous expansion of production capacity in traditional lithium producing areas such as Australia and South America.

The increase of mica projects in China cannot be ignored either. In 2023, the world’s lithium surplus is expected to reach about 70,000 tons, and the supply and demand pattern has improved compared with 2022. In 2024, with the further release of production capacity in African lithium mines and South American salt lakes, it is expected that the lithium industry will usher in a significant oversupply, with a surplus of 340,000 tons. The proportion of surplus continues to expand, and the downward pressure on lithium price increases.

5. Unilateral downward pressure on lithium prices eased

In 2021, with the rising price of lithium industry, downstream power battery companies will continue to pay more attention to lithium resources. For example, there are top 10 power battery installations in China. They are very professional in power battery development. On the basis of the original supply of lithium raw materials, many power battery companies are directly involved in lithium resource development and lithium salt production. For example, Gotion Hi-Tech and CATL have deployed Yichun lepidolite resources, and Yiwei Lithium Energy has participated in the development of Qinghai Salt Lake resources.

In the context of high lithium prices and accelerated development of lithium resources in China, the trend of battery companies directly engaging in lithium resource development is expected to continue to strengthen.The most important support for the current lithium price is the rising cost brought about by the rising price of lithium industry. Lithium price have risen to record highs.

The most important driving factor is the skyrocketing price of lithium mines in Australia, and the cost management of lithium salts is out of control. The sales price of Australian lithium industry has exceeded US$6,000/ton, and the corresponding production cost  is about US$60,000/ton, while the production cost of enterprises with their own resources can still be controlled below US$10,000/ton.

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