Lithium is following iron ore cycle, page-552

There’s almost 99% of lithium sector is in the bottom now, December 2019/January 2020, just like iron ore in December 2015/January 2016, imo.

The following two reputable reports summarise the sector quite well.

How to get plum scent without plump bones in 2019
12-28 18:58Source: Shanghai Nonferrous Metal Network5 Comments

Related stocks:Ganfeng Lithium IndustryTianqi Lithium Industry

Abstract: The monthly average price data of China's lithium salt products in 2019 Source: SMM lithium carbonate prices have experienced a year-long decline in 2018 and have not improved after entering 2019. Globally, the fundamentals of a significant oversupply have been added. After the domestic subsidies subsided, the market demand for new energy vehicles plummeted. The price of battery-level lithium carbonate fell below 50,000 after entering the third quarter. In the first quarter of 2019, due to the impact of winter weather, Qinghai Salt Lake lithium carbonate producers slightly reduced their production, and the inventory of salt lake industrial grade lithium carbonate producers has reached a low level.


　　Monthly average price of Chinese lithium salt products in 2019


　　Data source: SMM

　　The price of lithium carbonate has experienced a year-long decline in 2018 and has not improved after entering 2019. Globally, the fundamentals of a significant oversupply have been added. After the domestic subsidies subsided, the market demand for new energy vehicles plummeted. The price of battery-level lithium carbonate fell below 50,000 after entering the third quarter.

　　2019 first quarter, affected by the weather in winter, Qinghai Salt Lake lithium carbonate production enterprises have cut production slightly, and Salt Lake industrial grade lithium carbonate producer's stock has reached a low level, almost no possibility Paohuo years ago. The demand for downstream battery factories weakened around the Spring Festival, and the demand for lithium salts passed to the upstream decreased. In the absence of production reductions, upstream manufacturers are willing to sell lithium carbonate at a small price reduction in order to withdraw funds and destock, and the price of lithium carbonate has slowed down steadily. In May, due to the rise in industrial lithium carbonate prices, the increase in raw material costs led to a slight rebound in battery-grade lithium carbonate prices. On the supply side, the production of industrial grade lithium carbonate was mainly affected by the overhaul of some manufacturers in Qinghai, and the output supply was reduced. In addition, the supply of lithium carbonate in the ore smelting process was limited, and new capacity was released less than expected. The existing supply was affected by the overhaul. On the demand side, since March, the downstream has begun to “rush to install” and terminal demand has advanced; the output of lithium iron phosphate and lithium manganate has increased, driving strong demand for upstream lithium carbonate. But in fact, the rise in lithium carbonate prices is a short-term repair, and there is limited upside. With the end of the new energy subsidy transition period in June 2019 , downstream demand has rapidly weakened. At the same time, with the release of multiple smelters' capacity in the second half of the year, the supply of lithium carbonate has increased, the amount of imported lithium carbonate has increased, the industry inventory pressure has increased sharply, and the industry The chains all enter the "winter" in advance, and lithium carbonate is no exception. The second half of battery grade lithium carbonate market transaction price all the way down, and fell below 60,000 in mid-October, in December fell below 50,000, also in industrial-grade lithium carbonate early December a price of less than 40,000.

　　In 2019, the price of battery-level lithium hydroxide has fallen along with the decline in the price of lithium carbonate. In the first half of the year, the development of domestic high-nickelization was slow, and there was no significant change in the demand for lithium hydroxide downstream. At the same time, with the increase of battery-level lithium hydroxide suppliers after April , new entrants are now taking advantage of the current low-cost shipping behavior of the market . The price difference between lithium hydroxide and lithium carbonate narrowed slightly. After entering the second half of the year, with the introduction of new energy vehicle subsidy policies in 2019, the energy density requirements have not increased. Considering the frequent occurrence of new energy vehicle safety accidents in the first half of the year, the domestic high nickel process has slowed down. With the price of lithium carbonate dropping all the way, lithium hydroxide was forced to reduce its price significantly under the limited demand. In the fourth quarter, only Ganfeng Lithium, Albemarle lithium industries to enter the overseas high-quality supply chain system in the enterprise, with borrow long single stable overseas demand, the industry is located high amplitude prices, the rest SMEs only sporadic shipments, inventory run up, forced to cut prices to ship hydroxide The low price of lithium even gave a discount to the price of lithium carbonate in mid-to-late November , and the premium of the two almost disappeared. With the end of TeslaStarted stocking with the LG system . The high price of battery-level lithium hydroxide gradually stabilized, and the price difference with lithium carbonate re-pulled to 4000-5000 yuan / ton.

　　Forecast of China's average lithium product price in 2020

　　Based on the fundamental judgment of the excess supply of lithium raw materials in 2020, the price of lithium carbonate fluctuated at a low level after hitting a bottom in the first quarter or throughout the year. Considering that the current levels of finished product and ore stocks in various domestic smelters are at high levels, in order to ship goods, there is still room for prices to fall around the Spring Festival. As the price of lithium carbonate drops to the cost line of some spodumene companies, some companies may choose to cut down production, and the price of lithium carbonate is expected to stabilize. As for lithium hydroxide , as foreign car companies such as Tesla , BMW, and Volkswagen enter China next year , demand for high nickel may be boosted. However, according to SMM statistics , in 2019 domestic battery grade lithium hydroxide high-quality production capacity is more limited, if 2020 put smelter capacity or less than expected ( Ganfeng Lithium 50,000 tons project, Tianqi Lithium Industries24,000 tons of projects, etc.), lithium hydroxide prices may appear in the second and third quarter of 2020, a tight balance between supply and demand, prices may rebound, lithium carbonate prices may be pulled up. SMM estimates that the average price of battery-grade lithium carbonate will be 52,000 yuan / ton in 2020; the average price of battery-grade lithium hydroxide will be 67,500 yuan / ton.



Overview of the global lithium ore industry: the battle for survival and new opportunities (128 pages)
2019.12.11 19:43:00 Sina Finance-From Media Comprehensive
(For the report, please visit www.vzkoo.com)

Since 2015, 70% of the world's new production of lithium resources comes from ore lithium. We estimate that the global ore lithium production (concentrate form) will increase significantly from 61 thousand tons of LCE to 258,000 tons of LCE from 2015 to 2019, while the global salt lake lithium production will increase from 97 thousand tons of LCE to 178,000 tons of LCE. Due to the easy-to-replicate mining process and rapid climb in production, lithium ore quickly responded to the growth in global demand. In this report, we focus on lithium ore resources. The analysis covers 38 representative built and undeveloped mines around the world.

Australian mines constitute the main force of global ore, but the rise of European and American EV industries will bring more global opportunities. Due to the mature mining system, superior resource endowment, and convenient transportation to China, the Western Australian lithium mine constitutes the main force of the current global ore system. Australian mine output in 2019 is expected to account for 85% of global lithium ore supply and 51% of total global lithium resource supply. At the same time, "Australia mine + China lithium salt factory" is also the most Capex-efficient combination of single ton of lithium carbonate. However, with the rise of new energy vehicle markets and industrial chains in Europe and the United States, we expect that ore resources in the Americas, Africa, and even Europe are expected to usher in opportunities. Among them, the Americas have mature mining environments, but Africa ’s lithium resource endowment is even more exciting Coveted. In the context of increasing anti-globalization risks, lithium as a future strategic mineral has ensured that a certain percentage of lithium raw materials can be supplied independently and controllable. It has become a global consensus.

However, most of the newly put into operation ore lithium is located in the upper part of the cost curve, which belongs to the marginal capacity. From a cyclical perspective, the boom cycle of the lithium industry in 2015-2018 is mainly driven by the Chinese EV market, and the industry is currently in a "shifting period" towards a new cycle in the future. However, subsidized subsidence and fewer competitive models have led to a significant defoaming in the industrial chain, and the lithium raw material market has vanished and entered a cold winter. In 2017-2018, the newly commissioned lithium mines generally faced severe cost pressures. High stripping ratios, irregular flotation, and low recovery rates were the typical pain points. During the downturn in the industry, start-up resource providers carried the projects for project construction. High-interest debt is another big "killer." From Namibia, Quebec, and Western Australia, we have seen the solid lithium ore capacity gradually cleared from high to low along the cost curve, and miners are struggling for cash flow quarter by quarter. Only Thaleson remains stable. We believe that lithium ore that cannot reduce cash costs to less than US $ 400 / ton in the short term and cannot achieve debt optimization will be difficult to sustain. The supply side is not broken, but considering that the lithium concentrate is still a small market with insufficient liquidity and full of structural factors, if 1-2 mines continue to be shut down, it may lead to expected changes in the industry. Overall, we expect global ore lithium production to shrink by 7% to 240,000 tons of LCE in 2020, of which Australian mine output will shrink by 9% to 200,000 tons of LCE.

Positioning differentiation, the future of lithium extraction from ore is mainly in high-end lithium hydroxide. It is estimated that from 2020 to 2025, Europe and the United States will lead the world into the era of high-nickel power batteries. According to our calculations, the global power market demand for lithium hydroxide will reach nearly 100,000 tons in 2021, exceeding lithium carbonate for the first time. Lithium salt plants with their own mines have no cost disadvantage in producing battery-grade lithium hydroxide compared to salt lake systems, but have better product quality and stability. In contrast, the cost advantage of salt lakes in basic lithium salts such as lithium carbonate and lithium chloride is difficult to shake.

How to become a "smart investor" in the lithium industry? The global electrification has opened the curtain, and the lithium industry is at the bottom of the cycle. We believe that the price of battery-grade lithium carbonate is expected to build a bottom near 48-50 thousand yuan / ton, industry integrator And financial investors have ushered in a period of opportunity to implement a long-term strategic layout. However, lithium is a unique resource product with fine chemical properties. We recommend that you include both cost and process elements when selecting the target, and flexibly choose equity and debt investment tools to ensure effective investment and safety margins.

The escape cycle

The global lithium industry is experiencing the pain of the boom cycle after 2015-2018, and is transitioning to a new cycle in the future. With the launch of Volkswagen, BMW, Toyota and other global auto giants' roadmap for electrification transformation, and Tesla's "capacity hell", the global electrification curtain has opened, and industry trends have become a consensus. But looking at the moment, the upstream industry is facing a severe winter, and the global lithium resource capacity is undergoing painful clearance from high to low along the cost curve. High-cost hard rock lithium ore bears the brunt. In this report, we focus on the world's representative hard rock lithium ore, and analyze the future opportunities and challenges of lithium ore.

Five trends in solid lithium ores in the world so far in 2019

First, history often repeats similar cycles, and lithium is no exception. Despite the high growth of the lithium industry, there is no big difference between the industrial cycle and base metals. Since 2015, the global supply of lithium resources, especially the supply of lithium concentrates, has gone through a classic trio of the mineral industry: from the first phase of “increasing prices, awakening investment, and inelastic supply” (2015-2017) to the second phase, High investment, high prices, U-turns, supply rising, investment peaking down "(2017-2018), and then to the third stage" supply climbing, investment cooling, price bottoming "(2019). Looking forward, this trio also in turn reminds us that we should not use linear thinking to extrapolate future supply. After all, supply is often the dependent variable of investment brought by price and price, and demand is the decisive factor affecting the long-term price center. Currently standing at the bottom of the lithium industry cycle, we suggest investors pay more attention to the positive changes that are taking place in new energy vehicle terminals and batteries.



Second, it is often difficult to achieve “price-for-quantity” in the mineral industry. The industry logic of 2019Q1 lithium concentrate is "to fully expand output and reduce unit cost", but the problem that comes with it is "easy to expand production and difficult to expand sales". Due to the weakening demand intensity of China, the world's largest lithium ore demander, and the pressure of cash flow passed from the bottom of the new energy automobile industry in China , the lithium concentrate has rapidly changed from an incremental market to a stock market. As a result of the increase in production, 19Q2-Q3 Western Australian miners generally encountered significant inventory backlogs, and the already weak cash flow during the ramp-up period of production has further increased pressure. In addition, most of the emerging lithium miners are start-up resource companies and carry high leverage due to capacity construction. The downturn in concentrate prices has led to a significant rise in their refinancing costs and financing difficulties. In the next 3-6 months, we expect that the lithium ore industry will be divided into two categories: (1) relatively stable funds, with clear shareholder support, or resource endowments sufficient to be able to newly introduce "white knights", but only Opportunity to slow down production and achieve destocking. (2) For the remaining weak ones, they can only continue to finance while expanding production and sales, and rely on the breakthrough in cost reduction and efficiency improvement, but they will most likely be forced to suspend production and be reorganized by creditors.

Third, the barriers to lithium mining and dressing are underestimated. Lithium is a relatively new resource product and its products are different, and new entrants cannot avoid the necessary learning curve. In the upstream mining and selection process, mines that have been put into production in 2017 generally face problems such as low expectations for reselection recovery rates and difficult flotation standards (the biggest bottleneck). Currently, only Thaleson can take into account "production, quality, cost" . In addition, in the downstream lithium chemical industry, the nominal total production capacity is unrealistically high, but the production capacity of lithium salts used in mainstream ternary power battery systems is still limited to the leading manufacturers. In general, the lithium industry has a certain "fine chemical" attribute, and the incomplete skill of the various links in the industry has also strengthened this attribute and positioning.

Fourth, lithium miners generally seek to build lithium salt production capacity and need to be treated with caution. Since 2018, it has become a trend for start-up lithium mine resource providers in Western Australia and even the world to seek supporting mines to build lithium salt production capacity (vertical integration layout). There are three reasons for this. The industrial orientation of the mining country. (2) Make up for the lack of economics of lithium concentrates. (3) Play the "supply safety" brand and intentionally build a new lithium raw material supply system in the new energy vehicle markets in Europe and the United States independently of the current supply system. As for the third point, we will elaborate later. For the first two points, we think investors need to be careful. Miners blame the sales pressure and inventory backlog of lithium concentrates on the low-expectation of the capacity construction progress of downstream Chinese lithium salt plants, but in fact the nominal total capacity of lithium salts has been inflated, and the essential reason for not fully converting to effective capacity lies in Insufficient demand. In addition, the overseas long-term association price is still significantly higher than China's spot price, and some of the feasibility studies are too optimistic about the price of lithium salt products. Contrary to the idea of industrial extension, we believe that in the cold winter of the industry, the professional division of labor in each link is more important. Focusing on, practicing internal strength, and reducing cost and increasing efficiency are good strategies.

Fifth, it is recommended that decision makers in the lithium industry be strategically optimistic, but be tactically prepared for a "protracted war." On the one hand, history tells us that the cyclical adjustment of metal prices is often not completely rational, and "usually swings from one extreme to the other" does not necessarily stay in a reasonable central position for a long time. On the other hand, it is also because of the positive future prospects of the global new energy vehicle industry that it is difficult to complete the reshuffle of the current lithium industry, and it is also difficult to completely clear it. The nominal capacity and marginal capacity of lithium ore and lithium salts accumulated in 2015-2018 will still pose a high constraint on the price repair of lithium products in the next 2-3 years.





" Geo- strategic supply" thinking rises, or raises global lithium industry production costs

At this stage, the strategic value of lithium, cobalt, nickel, graphite, and rare earth permanent magnets upstream of new energy vehicles has gradually been recognized by global industries and government agencies. Lithium resources are even regarded as the future "white oil ." At the same time, the risks of anti-globalization are increasing. Against this background, the geo-ideological trend of the global new energy vehicle supply chain is emerging. Europe and the United States have gradually demonstrated the strategic intent of "from raw materials to complete vehicles-building a complete new energy vehicle industry system". At least a certain degree of lithium resources and lithium salts must be independently controllable. We believe that the rise of the "geo-strategic supply" thinking will bring profound impacts on the industrial chain in three aspects:

1) The enthusiasm of European and American mining companies, terminal car companies, and midstream giants of lithium batteries to engage in the development of upstream battery metal resources in the industry may increase. France's Eramet puts the lithium salt extraction in Argentina back on the agenda, Rio Tinto advances the pre-feasibility study of Serbia's Jadar boron and lithium mine, and Umicore's acquisition of the Freeport Cobalt Smelter in Finland can be regarded as typical cases.

2) The global new energy automobile industry may no longer be satisfied with importing lithium salts from China, and suppliers will be encouraged to invest in lithium compound production capacity in Australian and Canadian mining areas, in Japan and South Korea, and even in European and American end markets. AMG plans to build a lithium hydroxide purification plant in Germany, and Livent's "local capacity supply to the local market" strategy are typical examples.

3) In the future, some economically suboptimal lithium resource projects in North America, Africa, and Europe will usher in opportunities to support the newly emerging regional markets for new energy vehicles, and play a strategic role of enriching supply and strengthening supply security. In the field of ore, we believe that the “Western Australian Mine, China ’s Lithium Salt Factory” is the most efficient combination of capital investment and operating costs, but the intensification of the risk of anti-globalization means that the global division of labor will no longer follow the principle of efficiency first distribution. Under the premise that the lithium extraction technology has not been broken, this may mean that the cost center of the global lithium industry will rise overall in the future.



Our sample: 38 representative hard rock lithium mines worldwide

As the price of lithium carbonate in the future is likely to be determined by the cost of lithium extraction from ore, we focus on large hard rock lithium ore (solid lithium ore) in the world in this report. Specifically, we studied 38 representative lithium mines in the world in production, construction and feasibility studies, and analyzed the advantages and challenges of each asset.





Analysis of major lithium ore resources

Australia: the main supplier of global lithium concentrates, led by Thaleson

Hard rock lithium ore in the American continent: waiting for time to mature

Africa: lifting the veil of the cornucopia, the giant of the next cycle of the lithium industry

China's spodumene mineral resources: Ganzi, Aba thaw in Sichuan

European lithium, supply European cars?

...

Thinking about the future of the industry

Global lithium resource supply is gradually clearing from high to low along the industry's cumulative capacity cost curve, and industry integrators are also eager to move. We believe that the supply structure will not be broken. If there are 1-2 mines to stop production in the future, the industry is expected to undergo a subtle change. At the same time, we believe that in view of the fact that the basic lithium salt of ore production is difficult to compete with salt lakes in terms of cost and safety margins, the ore system should try to maximize its quality advantage. The future opportunity lies mainly in battery-grade lithium hydroxide. On the whole, the analysis framework of the lithium industry needs to consider both the cost curve and product differences. "The clever combination of resources and processing technology" is the secret of long-term success in the lithium industry, and the value of the corresponding long-term investment is not significant. Metaphorically.

Where are the supply cycle, demand cycle, and inventory cycle?

Supply cycle: From 2015 to 2018, the global lithium resource supply side experienced three major bottlenecks: "It started with a substantial shortage of lithium concentrates, then with a substantial shortage of effective lithium salt production capacity, and finally reached a process bottleneck for high-quality lithium salts." In 2019, the rise of professional purification capacity (especially Sichuan and Zhejiang) caused the premium of star products such as lithium hydroxide to return to rationality from profiteering, but battery-grade lithium salts are still a market with differentiated quality. Pure metals such as lithium still enjoy a stable premium. According to our global lithium industry model, the global hard rock lithium ore output is likely to shrink in 2020, and it will only grow slightly in 2021, but the new capacity of the South American salt lake lithium giant may be realized in 2020-2021. The global supply optimization is significant, but it is difficult to tell.

Demand cycle: From 2015 to 2019, the Chinese electric vehicle market is the mainstay of global lithium demand and a booster for lithium prices. In the past five years, China ’s lithium demand side has also gone through three stages: “originally driven by policies (inspired by policies), driven by midstream capacity (materials and batteries), and then returned to end-driven (product-driven)”. With the subsidy subsiding, the future lithium demand will be more shifted to the product competitiveness of new energy vehicles compared to traditional vehicles, that is, driven by consumption. At the same time, the rise of battery leaders such as CATL and BYD also cleared the small and medium capacity and invalid inventory in the midstream of the industry. Although the current demand for To C is weak, Tesla has entered a heavy volume period, and the electrification transformation of European car giants has begun. With the technological progress of battery systems, global lithium demand growth or re-accelerating in 2020-2022 .

Inventory cycle and market expected cycle: Due to the sluggish industrial sentiment, the lithium salt inventory of China's new energy automotive industry has been compressed to the bottom since 2018. The supplier's lithium concentrate inventory began to enter the physical destocking stage in 19Q4, and the lithium salt inventory also It takes time to digest. However, at the investment level, the market's expectations for the industrial chain have bottomed out and started to pay more attention to industry trends and are not completely limited by short-term fundamentals.



Positioning differentiation, the future of lithium extraction from ore mainly lies in high-end lithium hydroxide

Based on the consideration of production cost and product quality, we believe that the positioning of ores and salt lakes will be differentiated in the future. The opportunity to extract lithium from ores mainly lies in battery-grade lithium hydroxide. The cost advantage over lithium salts is clear. Especially with the expansion of the South American and Chinese salt lake systems from 2020 to 2022, if the lithium ore extraction companies do not have high-quality lithium hydroxide production capacity, they will continue to be at the top of the cost curve and lose core competitiveness in the future.

 The high nickelization capacity of global power batteries "only loses time but not space". In the future, the long-lasting new energy vehicles will increase the main body of incremental lithium salt demand to lithium hydroxide. According to our calculations, the global demand for lithium hydroxide in power batteries will reach 98,100 tons in 2021, exceeding the demand for battery-grade lithium carbonate (73,900 tons) for the first time.

 The ore method can directly produce battery-grade lithium hydroxide in a single step. Under the assumption of self-supplied lithium concentrate, the production cost is about 4500-5500 USD / ton, while salt lakes need to produce lithium carbonate first, and then causticize lithium hydroxide. Out of the same quality battery grade lithium hydroxide is about 5,000-6000 US dollars / ton. Under the current process system, lithium extraction from resource-sufficient (upstream and downstream integration) ore has at least no cost disadvantage in terms of battery-grade lithium hydroxide products. In comparison, the cash cost (excluding equity and financial costs) of producing lithium carbonate in Salt Lake is usually between 2500-4000 USD / ton, and ore costs 3500-6000USD / ton. Good quality, but not always a sufficient premium.

 In addition, due to unstable raw materials and other reasons, lithium hydroxide produced by the causticizing method often cannot guarantee the stability and consistency of quality. At present, only Livent (formerly FMC Lithium) salt lake lithium hydroxide products have been recognized by global battery customers. Although Albo and SQM have salt lake lithium hydroxide production lines, they are currently vigorously deploying ore lithium hydroxide production capacity and impurity control. And stability is the core competitive advantage of ore-based products.

 However, it should also be noted that technological breakthroughs in lithium extraction from salt lakes will not be ruled out in the future, such as the electrolytic production of lithium hydroxide from lithium chloride and lithium extraction from primary halogens (further reducing the production cost of basic lithium salts-lithium carbonate and lithium chloride) The potential to change the competitive landscape.





For industry integrators: what types of mines have bottom investment value? Return to industry cost curve

In 2019, the price of lithium raw materials has returned to the bottom of the cycle. We expect that the price of battery-level lithium carbonate may reach a bottom of around 48-50 thousand yuan / ton. It is undoubtedly the "winter" that industry integrators are waiting for, and the long-term industrial investment in the lithium industry has entered the "Comfort Zone". So how to pan gold and select lithium resources assets in the gravel? We have the following three core views on this:

 The industry cost quantile of assets and future cost reduction potential are the most critical factors. Hard rock lithium ore assets and salt lake lithium assets have their own advantages and disadvantages. We believe that the two will still coexist and complement each other in the future, but salt lake assets have a margin of safety in terms of cost. For hard rock lithium ore, focus on cost factors such as ore formation, grade, stripping ratio, mining and selection schemes, and logistics; salt lake assets also need to focus on examining factors other than the lithium extraction process, team, and fresh water resources; It is also necessary to pay attention to the potential impact of lithium industrialization of clay on spodumene mines in the future.

 Smart investment in lithium ore assets. (1) Due to the industry's positive forward expectations, the valuation of the controlling stake in the tender offer is much higher than the secondary market share price, participating in additional issuances, gradually increasing the proportion of equity, or a lower cost method; Production capacity, and be wary of shareholders whose structure is too diverse, so as not to be greatly diluted by subsequent refinancing; (3) flexible choice of equity and debt investment tools. Most of the emerging lithium miners belong to start-up resources companies, and because mining construction generally carries high-interest liabilities (annual interest rate of 12% -15%), investors especially need to avoid the underlying assets due to violation of loan terms (for financial indicators, mining plans , Price requirements) and was forced to reorganize by creditors. But from another perspective, investing in creditor's rights against valuable "crisis assets" is also a clever layout.

 Investors are advised to be wary of “valuation moisture”. (1) Be wary of the long-term price assumptions in the feasibility study assessment. The wide premium of the overseas long-term associations relative to China's spot is only a gradual one; Mine is suitable for supporting the construction of battery-level lithium compound production capacity in the mining area.



For financial investors: Lithium resources is one of the strategic commanding heights of the industry chain, and long-term bullish on industry leaders

Lithium resources are a strategic commanding height of the new energy vehicle industry chain. From the perspective of industry development laws, the probability of the global new energy vehicle industry chain will also follow the two classic industrial models with a strong “smile curve”, and the current end vehicle companies are increasingly inclined to directly lock up long-term resource supply with resource providers This trend. Therefore, we believe that lithium resources are a commanding height in the global new energy vehicle industry chain that is worth long-term optimism. In addition, the lithium ore to lithium salt link is also one of the few industrial links in the industry chain with gross margins that have been backlogged to the bottom (except for a few endowments with superior head resources). Even if we do not discuss the extent to which future prices can be repaired, at least There is also limited room for further significant deterioration.

As far as individual stocks in the lithium industry are concerned, we believe that high-quality targets have three characteristics: (1) possession of "corner assets", which has a clear cost advantage in the two links of minerals and lithium chemicals, or has the potential to significantly reduce costs in the future . (2) Matching the superiority of high-quality resources with the superior technology, which can implement capacity construction with high execution and efficiency, and provide lithium products required by global customers, whether battery-grade lithium carbonate, battery-grade lithium hydroxide, or fine powder or anhydrous Lithium hydroxide and even high purity metal lithium. (3) Close binding with global high-end supply chains and blue-chip customers to build long-term strategic supply relationships (such as Tesla supply chain, Volkswagen supply chain, BMW supply chain). In the future, the demand for power batteries from large global manufacturers (complete vehicles and batteries) will become the main increase in lithium demand, and there will be more stringent requirements for supplier quality certification and supply stability. Therefore, the moat of the industry will increase instead of decrease; Blind unilateral capacity expansion in the lithium compound link will have no future. Only by deeply binding with the terminal can we enjoy effective demand, convert capacity to effective capacity, and obtain a premium for product quality. Under this analysis framework, we have long been optimistic about Ganfeng Lithium and Tianqi Lithium.



(Report source: Minmetals Securities)