I'd like to share my thoughts on what caused recent sharp drop on lithium stocks.
First started with Goldman Sachs research report back in June, and coincidently with a rumor that Chinese second large battery producer, BYD, secretly bought SIX lithium mines in Africa without any disclosure. Then obviously lithium stocks got smashed. Secondly, last November, Goldman Sachs admitted they got wrong with lithium price forecast but reiterated a ridiculous price forecast for coming years. More recently, was yesterday, CATL/Ningde proposed to offer a mixed discount price to Chinese automakers those signed strategic agreements:
some batteries will be purchased at lithium carbonate price of CNY200,000 (US$29,122/t LCE), the remaining will be purchased at market price, and also requiring prepayments, starting Q2, 2023, for next three years.
The massive discount price definitely shocked the market, thus a massive dump across the lithium sector yesterday. BUT, the tricky part is, CATL still has not responded the news, they have been trying to push lithium price down, by making huge noise on sodium ion batteries, it did not work. Now a proposal to a massive discount to the market price for
SOME batteries to their
limited customers, but
remaining batteries are still selling at the market price. So how much is the "Some Batteries"? 10%, 20% or 30%?
In January 2023, CATL
lost their market share by 5.8% to 44.41% in China battery market. Offering
some discount price for their strategic customers, is quite common to maintain their market leader position, imo.
I found a very recent research report from Cinda Securities on CATL/Ningde Era, and BYD.
CATL has been investing/acquiring lithium projects before their IPO, first one, NAL, yes, but unfortunately, CATL let NAL going into liquidation, then PLL/SYA bought NAL. CATL strategically invested in Neo Lithium, but was taken over by Zijin. Then CATL attempted to take over Millennial Lithium, but outbid by Lithium Americas. So their overseas projects acquisitions are almost all failed.
CATL's current and planned lithium capacity:
1. Current mines equity attributable LCE capacity: 32ktpa;
2. Planned mines equity attributable LCE capacity: 87ktpa;
3. Refinery equity attributable LCE capacity: 160ktpa (mainly from AVZ Manono, AMG & PLS);
4. Recycling capacity: 16ktpa.
No 3, is a big uncertain one, as some projects would delay, especially massive deposit Manono currently is in ownership dispute, was meant to be online 2023/24, but still struggling to get a mining license.
After analysing CATL's capacity, I wonder this proposal is enough to smash lithium price down another 53%? Only the market will know.
I always have a view, lithium has lots of proximities as iron ore:
1. Price was very low before China demand emerged. Iron ore price was trading at US$12/dmt, then huge demand from China due to building infrastructure and urbanization in China, iron ore price shot to US$180/t. Also iron ore price was only on long term contract price, there was no market price initially. Similarly, lithium (although it's special chemical, but spodumene concentrates are still commodities, I think it's still a commodity) price was very low before EV resolution started, from US$6,000/t LCE to US$80,000/t LCE, massive uplift, similar percentage. Iron ore price was experiencing yo-yo over last decade, it did drop to as low as US$39/t, then quickly bounced to US$60-80/t. While it hit US$39/t, institutions predicted long term iron ore price:
2015 Average Iron Ore Price:
CitiGroup: US$36/t
Goldman Sachs: US$52/t
HBSC: US$54/t
JP Morgan: US$50/t
World Bank: $63/t
BUT, the reality is:
Iron ore price bounced quickly, and gradually broke the impossible level of US$100/t, hit a fresh new high of US$224/t.
I agreed current high lithium price will not sustain, but long term lithium price will be a lot higher than previous estimate of US$1,500/t for spodumene concentrate. I'd guess for SC6, US$2,500/t is pretty reasonable for long term, compared with peak price of US$8,300/ton and current spot price of ~US$6,000/ton.
At US$2,500/t for SC6, LLL's 40% (lowest ownership), would generate total free cash flow of $13B, or $680m annually from stage 2 for 18 years.
Vs current LLL market cap of $688m.
All imo.
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The following is extracted from Cinda Securities Research Report published 20 January 2023:
1. Ningde era (CATL): take lithium resources as the core, and integrate to build competition barriers
1.1 Ningde era: battery leaders focus on lepidolite and spodumene resources
The layout of the industrial chain in the Ningde era started early and has a wide range. Ningde era's earliest layout field is upstream raw materials. From 2018 to 2020, Ningde era successively participated in North American Lithium, Pilbara, Tianyi lithium industry, Neo Lithium, and North American Nickel (now Premium Nickel Resources Ltd), Qingmeibang, and began to initially involve lithium , nickel, and cobalt resources, and the purpose of the cooperation is to ensure the supply of raw materials through underwriting, strategic cooperation, etc. At the beginning of 2020, Ningde era withdrew part of its resource layout in North America. At the same time, the mismatch between upstream and downstream supply and demand led to a sharp rise in raw material prices. Ningde era began to deploy its own mines, initially located in Yichun, with a total plan to produce 80 million tons of lithium-containing china clay mines per year. Mining project. At the same time, Ningde Times is gradually strengthening cooperation with Sichuan enterprises, and has reached a strategic cooperation with Sichuan Energy Investment (a subsidiary of Sichuan Energy Power, which owns the mining rights of Lijiagou). Sichuan's ore lithium resources account for 6.1% of the world's ore lithium and 57% of the country's total, and there is still great potential for future development.
1.1.1 Layout of lepidolite in Jiangxi
Mining end: Ningde era has obtained the mining rights of the largest lithium mine in Yichun. Yichun has more than 20 lepidolite mines, among which Yichun tantalum-niobium mine, Dagang porcelain clay mine, Songshugang tantalum-niobium mine and Qiankeng lithium mine have relatively high reserves, but the production capacity of lithium carbonate does not exceed 1.5 million tons. In August 2022, Ningde Times announced that it had obtained the mining rights of the Jianxia Mine. The resource reserves of the Jianxiawo Mining Area were 960.25 million tons, with about 2.66 million tons of associated lithium metal oxides, an average lithium oxide grade of 0.27%, equivalent to about 6.57 million lithium carbonate equivalents tons, becoming the largest lepidolite mine in Yichun, which has been attracting market attention because of its huge reserves.
The cost of mining, dressing and smelting of Jianxiawo Mine is relatively high, but the contribution to the cost reduction of raw materials is still relatively significant under the tight balance between supply and demand of lithium resources in 23 years. Taking the average grade of ore in the Jianxiawo mining area as the benchmark of 0.27%, and under the assumption of different beneficiation yields, we estimate that the smelting of a single ton of lithium carbonate requires about 2.24-5.98 million tons of raw ore, which is 2-5 times that of Yongxing materials. Value 3.5 times. The increase in raw ore consumption not only means that the cost of raw materials has increased, but also means that the processing costs of mining and smelting have increased. We estimate that the production cost of ore dressing + smelting in the Jianxiawo mining area is about 3.5 times that of Yongxing Materials. Yongxing Materials 2022H1 The production cost of a single ton of lithium carbonate is about 50,000 yuan/ton, so
we estimate that the production cost of lithium carbonate in Jianxiawo Mine is about 175,000 yuan/ton (USD$25,480/t LCE). According to the SMM, the biggest production climb in 2023 will come from experienced global lithium mining giants such as Albemarle and Chile's SQM, which are more likely to succeed in increasing production, but their production will only account for about one-third of the overall expected production increase, so The increase in lithium mine production still faces great uncertainty on the supply side, and it is expected that the cost pressure on the battery side will still be great. And considering that the grade of the general ore developed first is relatively high, the contribution of the development of Jianxiawo Mine to the cost reduction of raw materials is still relatively significant.
The cost of mining, dressing and smelting of Jianxiawo Mine is relatively high, but the contribution to the cost reduction of raw materials is still relatively significant under the tight balance between supply and demand of lithium resources in 23 years. Taking the average grade of ore in the Jianxiawo mining area as the benchmark of 0.27%, and under the assumption of different beneficiation yields, we estimate that the smelting of a single ton of lithium carbonate requires about 2.24-5.98 million tons of raw ore, which is 2-5 times that of Yongxing materials. Value 3.5 times. The increase in raw ore consumption not only means that the cost of raw materials has increased, but also means that the processing costs of mining and smelting have increased. We estimate that the production cost of ore dressing + smelting in the Jianxiawo mining area is about 3.5 times that of Yongxing Materials. Yongxing Materials 2022H1 The production cost of a single ton of lithium carbonate is about 50,000 yuan/ton, so we estimate that the production cost of lithium carbonate in Jianxiawo Mine is about 175,000 yuan/ton. According to the SMM, the biggest production climb in 2023 will come from experienced global lithium mining giants such as Albemarle and Chile's SQM, which are more likely to succeed in increasing production, but their production will only account for about one-third of the overall expected production increase, so The increase in lithium mine production still faces great uncertainty on the supply side, and it is expected that the cost pressure on the battery side will still be great. And considering that the grade of the general ore developed first is relatively high, the contribution of the development of Jianxiawo Mine to the cost reduction of raw materials is still relatively significant.
The layout of Ningde's lepidolite in Yichun is completed by Yichun Times Mining and Yichun Times. The lepidolite mines also include: Jinzifeng Mine, Dagang Porcelain Mine, and Huashan Porcelain Mine. The
total production capacity of lithium carbonate that has obtained mining rights is 32,000 tons, which can supply 45.2Gwh of power batteries.
The planned lithium carbonate equity production capacity is 87,000 tons, which can supply 124Gwh of power batteries (700 tons of lithium carbonate for 1Gwh).
Smelting end: the total equity smelting capacity is 160,000 tons. The core layout of Ningde era in the smelting end is to participate in Tianyi Lithium Industry and Zhicun Lithium Industry. 1) Ningde Times holds a 25% stake in Tianyi Lithium Industry. On December 2, it announced that it will invest another 200 million yuan to participate in the subscription of Tianhua Super Net Fixed Increase to increase its shareholding ratio. Tianyi Lithium Industry has a lithium salt smelting capacity of 45,000 tons, and
another 210,000 tons are under construction. The main source of its lithium mines is the offtake agreement with Manono (AVZ), AMG, Pilbara, etc. 2) Ningde Times holds a 23.6% stake in Zhicun Lithium. Zhicun Lithium will ship 60,000 tons in 2022. With the expansion of Yichun and Ganzhou bases, Xinjiang and Hunan bases will be put into production. The planned output in 2023 will be 200,000 tons. At the same time, Ningde Times and Zhicun Lithium jointly established Wanzai Times Zhicun, with a planned production capacity of 30,000 tons. 3) The company, Tangshan Xinfeng Lithium Industry and Longpan Technology have established a joint venture company, Yifeng Times, planning to build 70,000 tons of lithium carbonate smelting capacity, of which the first phase of 30,000 tons is expected to be completed within 2023.
Recycling end: The production capacity of lithium carbonate at the recycling end is about 16,000 tons. Ningde Times acquired Guangdong Bangpu in 2015 to lay out the lithium battery recycling business. At present, Bangpu has a waste battery processing capacity of 120,000 tons, and the recovery rate of lithium metal has reached more than 90%, which is about 16,000 tons of lithium carbonate recycling capacity.
1.1.2 Layout of lithium mines in Sichuan
The Ningde era has established a production and research base for power batteries and lithium battery materials in Sichuan, and the layout of lithium mines has gradually increased. 1) Battery side: On September 25, 2019, Sichuan Times Power Battery Phase I project with a production capacity of 15GWh was signed. At present, Ningde Times has built + planned ten phase factories in Sichuan, with a total production capacity of 190GWh and a total investment of 56 billion yuan. 2) Materials: Ningde Times, Defang Nano, and the People's Government of Jiang'an County signed an investment agreement to invest in the construction of a "lithium iron phosphate project with an annual output of 80,000 tons" in Jiang'an County, Yibin City, Sichuan Province. The total investment is about 1.8 billion yuan, and it is expected to be constructed in two phases. At the same time, the company continued to increase its layout in lithium mines, reached a cooperation agreement with Sichuan Energy Investment and Ganzi Investment Group, and began to deploy its own lithium mines. On November 25, 2022, Ningde Times was elected as the No. 1 reorganization investor of Snowway. Snowway owns the detailed investigation and exploration rights of the Dechalongba Lithium Mine and Quartzite Mine in Yajiang County, Sichuan Province, industrial mines and low-grade The ore volume of the mine reached 24.924 million tons, and the lithium oxide reserves reached 290,000 tons, with an average grade of 1.18%.
1.1.3 Industrial Chain Layout
The Ningde era strengthened its control over the battery industry chain through direct shareholding and industrial investment. 1) Ningde era's direct shareholding materials companies include Litai Lithium Energy, Hunan Yuneng, Zhenhua New Materials, Jiayuan Times, Pingnan Times, Longyan Sikang, etc., and established joint ventures with material factories Qujing Phosphorus Iron and Yongtai High-tech , Strengthen the control of the industrial chain. 2) Since 2017, Ningde Times has successively established and invested in Fujian Times Mindong, Yibin Chendao, Boyu Phase IV (Xiamen), Shandong Green Development, Beijing Hillhouse Yurun, Shanghai National Policy and other industrial funds, focusing on power batteries, energy storage, Lithium battery materials, lithium battery intelligent equipment manufacturing, charging and swapping, automatic driving, new energy vehicles, chips, semiconductors and other fields. Investment companies include Yanyi New Materials, Jinmei New Materials and other new material companies, Horizon, Xinmai Chip semiconductor companies such as semiconductors, as well as companies in different links of the battery industry chain such as AIWAYS Automobile, Blue Valley Smart, and State Grid Times.
2 BYD: The core layout is to extract lithium from salt lakes, and to expand resource layout in South America and Africa
BYD's mining end is deployed in Zabuye Salt Lake, the smelting end is deployed in Salt Lake BYD, and the lepidolite mining and dressing project is deployed in Yichun. At the same time, it participates in Shengxin Lithium Energy and cooperates closely with Rongjie to ensure the supply of lithium resources. BYD plans to
exceed 600GWh of battery production capacity by 2025. We estimate that BYD's own + planned mining end equity production capacity will total 109,000 tons, and equity smelting production capacity will be 126,000 tons, which can supply 173Gwh of power batteries (1Gwh lithium carbonate consumption is 700 tons).
(20min delay)