Analysis of lithium carbonate supply side Analysis of Upstream Resources of Lithium Carbonate

Analysis of lithium carbonate supply side

Analysis of Upstream Resources of Lithium Carbonate

Lithium carbonate supply can be divided into two parts: resource enterprises and lithium salt smelters. Resource enterprises are mainly responsible for the extraction of spodumene, salt lakes, and mica, while smelters are responsible for processing and refining the resource end to obtain lithium carbonate and lithium hydroxide.

1. Smelter situation

For smelters producing lithium carbonate, although downstream demand is strong, they cannot generate profits by expanding production capacity because they have limited access to upstream mineral resources. Therefore, for smelters with low short-term resource ownership rates, the core of expanding production comes from sufficient resource guarantees, and simply expanding lithium salt production capacity has limited profit margins. This resource-based business model with strong discourse power has further led to the layout of vertical integration of the industrial chain.

2. Integrated Mining and Metallurgy

The leading suppliers of lithium carbonate and lithium hydroxide are characterized by an integrated layout of mining and metallurgy, mainly manifested by their high resource ownership rate. For enterprises with high resource ownership rates, lithium prices may remain in a prosperous range for a long time, ensuring the company's profitability. On the other hand, an integrated layout highlights the growth potential of resources and smelting. Enterprises can convert the resource premium brought by minerals into long-term competitive advantages; For enterprises with low resource ownership rates, the shipment volume of upstream lithium resources is low, and lithium prices lead to unstable costs, which in turn affects the capacity utilization and profit situation of the enterprise. Therefore, we mainly focus on and analyze enterprises that have access to upstream lithium resources, rather than smelters with lower resource ownership rates.

"Resources are king", the industry pattern of integrated mining and metallurgy

(1) Resource side (spodumene veins, salt lakes, mica)

Australia's lithium resources are mainly spodumene minerals, while South America is mainly dominated by salt lakes (including Chile, Argentina, etc.). China's lithium resources are limited by spodumene veins, mica, and salt lakes. According to USGS statistics, as of 2022, lithium resources mainly come from Australian veins, followed by South American salt lakes, accounting for 52% and 25% respectively.

The data does not include African veins, mainly because African veins are basically in the production stage and are expected to be completed by 2023-2024. Although there will be many African lithium mining projects completed and put into operation in 2023, considering the ramp up of project production capacity and scale, it is expected that they will still not be able to compete with the current Australian lithium mines. It is expected that there will be a significant contribution in lithium production capacity in 2024, which will also become the first peak period of lithium production capacity growth in Africa.

The main production capacity of spodumene is located in Australian minerals, and Greenbush is currently the world's largest lithium mine in operation. In 2022, the current production capacity is 1.62 million tons, belonging to Tianqi Lithium and Yabao in the United States.

The second largest mine is Wodgina, with a production capacity of 500000 tons in 2022, belonging to Yabao and MRL in the United States. Three production lines with a total production capacity of 750000 tons were completed in 2019 and are currently in the maintenance phase. As of now, the first production line has resumed work and will produce lithium concentrate in May 2022. The second production line is expected to resume work in July 2022, with a total production capacity of 500000 tons. The resumption time for the third production line and the construction plan for the fourth production line are expected to be announced by the end of 2022.

The third largest mine is Pligangoora, which belongs to the mining enterprise Pilgara. In addition, Ngungaju also belongs to this enterprise, and its lithium concentrate is mainly sold on the BMX auction platform. The BMX auction model drives long order prices to reflect real-time supply and demand relationships, and smelter profits may be squeezed under this mining price.

The fourth largest mine is Mt Marion, whose production capacity belongs to MRL subsidiary PMI and Ganfeng Lithium.

(2) Enterprise end (with layout from top manufacturers)

Summary of recent production capacity of lithium mines in various regions around the world

According to our analysis of existing production capacity planning, 2023-2025 will be the peak period for overseas resource capacity investment. In 2022, the overseas lithium resource LCE production capacity was nearly 800000 tons, with an increase of 440000 tons, 390000 tons, and 430000 tons from 2023 to 2025, respectively. Argentina and Africa will be the core increment drivers, followed by Australia and Canada. Europe and the United States may need to start partial increment investment by 2025. Chile's new national potassium strategy is expected to accelerate salt lake development and long-term production, with limited short-term increment, The progress of Bolivia's plan for 100000 tons of LCE in 2025 still needs to be observed, while Brazil's long-term prospects are relatively positive. Considering that most of the projects are green spaces, it is difficult to achieve the initial production ramp up overnight, and some long-term production capacity that has not yet been announced gradually clarifies the production nodes, the peak period of substantial production input is likely to be extended.