Lithium Resource Supply and Demand Analysis - Demand Section



Lithium Resource Supply and Demand Analysis - Demand Section

I have written several articles about lithium mines before. Later, people who invest in lithium mining stocks and work on lithium carbonate futures approached me and asked me some questions. The most common question I asked was, "What do you think about the supply and demand of lithium resources in the next two years? Whenever I encounter this problem, I find it difficult.".

I can also say what I think it should be, but the subsequent argumentation process actually involves many factors, which is difficult to explain at once. Now I will explain the process of thinking about this issue, and also clarify some of the problems encountered in tracking lithium prices over the years.

Today, let's talk about where the bottom of lithium prices lies. We all know that prices are determined by supply and demand, so today we will first talk about the supply and demand situation of lithium.

1、 Lithium resource supply and demand

Supply and demand determine prices, which is what many people think of. Let me first explain the demand.

Lithium demand for power batteries

According to current industry data, automotive power batteries (including two wheeled vehicles) and energy storage batteries can account for approximately 70% of lithium resource consumption. These are the two areas with the largest demand for lithium resources in the future, while other traditional areas actually have low growth. Therefore, to grasp the demand of these two areas, we need to grasp the overall direction and growth rate.

Firstly, let me talk about automotive power batteries. Currently, the demand for power batteries is expected to grow well in 2023. According to data from the China Association of Automobile Manufacturers, it is expected that the sales of new energy vehicles in China will increase by 35%, and this year, the sales of new energy vehicles in China will exceed 9 million.

From a global perspective, according to SNE's forecast, the global sales of new energy vehicles are expected to be around 14 million units in 2023, a year-on-year increase of 40%. I previously discussed this in my article "Insufficient demand? Overcapacity? Looking at China's new energy vehicle industry chain from a larger perspective", as shown in the following figure. At that time, the global sales from January to July 2023 were summarized

Why is the global sales growth rate of new energy vehicles higher than China this year? Our original impression was that the domestic growth rate was the highest, but the situation will change later this year because after two years of super rapid growth, the overall sales of new energy vehicles in China have reached over 9 million units, and the penetration rate has also reached 35%. According to data from the China Association of Automobile Manufacturers, the overall sales scale of domestic cars is about 26 million units. At this time, it is difficult to achieve a growth rate of over 100% as before, because with another 100% growth, sales will reach 20 million units.

Foreign electric vehicles started late and currently have a relatively low penetration rate. According to Marklines data, in the third quarter of 2023, the global penetration rate of new energy vehicles was about 15%.

Let's take a look at sales data for the other two major global markets, the United States and Europe. In the first three quarters of 2023, the cumulative sales in the US market reached 1.0995 million units, a year-on-year increase of+55.6%, with a penetration rate of about 9%. The sales growth trend is good, and the Inflation Reduction Act has had a significant effect on driving sales of new energy vehicles.

The demand for new energy vehicles in the European market has also recovered, with sales in the first three quarters increasing by 30.7% year-on-year and a penetration rate of about 20%.

This year, the sales growth of electric vehicles in China is about 35%. Although the domestic growth rate may slow down, such as 25%, the United States, as the world's second largest market, has a high growth rate, with an expected growth rate of 50-70%.

Currently, institutions predict that the domestic growth rate will be 20-25% in 2024, and the global sales volume will be 18 million vehicles, with a growth rate of 28%. I think this is also reasonable because after this year, the growth rate of new energy vehicle sales in countries other than China is likely to be higher than China, while other countries are basically equivalent to China's penetration rate three years ago. This penetration rate will eventually increase, and it is a process of catching up. It is expected that the global sales growth rate of new energy vehicles will be around 28% in the next two years. The global demand for lithium in power batteries accounts for approximately 55% of the total demand.

Energy storage lithium demand

Energy storage, as the area with the best growth rate, is the second largest demand, accounting for about 15%. According to research firm ETANK, the shipment volume of energy storage batteries in 2022 was 159.3 GWh, a year-on-year increase of 140.3%. Compared with the global shipment volume of automotive power batteries during the same period, which was 684.2 GWh, a year-on-year increase of 84.4%. That is to say, in 2022, energy storage batteries are equivalent to 23% of the shipment volume of power batteries.

The growth rate of energy storage batteries is very fast. In the first half of 2023, the global shipment of energy storage batteries reached 110.2 GWh, a year-on-year increase of 73.4%. Among them, the shipment of energy storage batteries from China was 101.4 GWh, accounting for 92% of the global shipment of energy storage batteries. If the growth rate of energy storage batteries remains at 70% in the next two years, and the growth rate of power batteries remains at 28% (referring to the global sales growth rate of new energy), the shipment volume by 2025 is as follows:

That is to say, in 2025, energy storage shipments accounted for approximately 50% of power battery shipments. At that time, energy storage was a very large market because the energy storage shipments in 2025 were larger than the global power battery shipments in 2022.

Many people think it's a bit excessive, but I still believe that this goal can be achieved. It may be delayed by a year, but it can definitely be achieved because if you look at the growth rate of energy storage order volume data, it will be even higher. In China, the growth rate is above 100%, and order volume is a forward-looking data for shipment volume. (Some people may say that there are fewer energy storage orders now because battery prices have dropped significantly, and customers are watching. The decrease in battery prices is actually beneficial for energy storage installation, and this installation will come up sooner or later.)

New energy vehicle power batteries+energy storage are the two largest areas in the future lithium battery market, accounting for about 70%. The global growth rate of power batteries from 2023 to 2025 is 40%, 28%, and 28%, while the global demand for energy storage from 2023 to 2025 is 70%, 70%, and 70%. Other electronic consumption, industrial applications, glass and ceramics account for 30%, which means there is no growth. The overall growth rate of lithium demand is 31%, 25%, and 25%. Correspondingly, the global demand for lithium resources from 2023 to 2025 is 951.2 and 1.55 million tons,

I would like to clarify that the energy storage data I predict here is based on ETANK's shipment volume, which may be higher than the actual shipment data reported by general institutions because it includes confirmed order data, which means its data looks forward to the next 9 months of shipment volume (assuming a 9-month construction period for energy storage). Therefore, my data may be higher than other institutions, but it is reasonable.

Automotive power batteries (including two wheeled vehicles) and energy storage batteries can account for approximately 70% of lithium resource consumption. The high growth rate of these two indicates that the demand for lithium mines is not much worse, and the prediction given above is relatively reasonable.

Lithium demand may be underestimated

Some people may say that this is just an overview of the requirements, without precise calculation. So, let me tell you, accurate calculation actually leads to precise errors. Many institutions have calculations, and if you want to see how to calculate specifically, you can refer to institutional data. The calculation method, for example, 585 tons of lithium carbonate are required for each GW of lithium iron phosphate battery, and 655 tons of lithium carbonate are required for each GW of ternary battery. Let's also calculate the global shipment volume of ternary batteries and lithium iron phosphate batteries in this way. The following figure is a table made by Zhejiang Securities, please note that only the increment is included here.

Many people believe that the demand for 2023 is not as high as 950000 tons, as many institutions calculate a demand of around 850000 tons. This is because institutions calculate based on the shipment volume of batteries, power, and energy storage batteries. This is to forget, because there are too many areas of lithium consumption, including new energy vehicles, energy storage, industrial machinery, electronic consumption, glass ceramics, military industry, shipping ports, and so on. Although some fields may not consume much, the accumulation of so many fields together can also result in significant incremental growth.

Also, new energy vehicles are not just pure electric and hybrid. According to statistics, the global annual sales volume of two wheeled vehicles is over 70 million units, and there is still a lot of untapped data? Special vehicles such as environmental protection and logistics, various tractors, various backup power sources in the consumer sector, power banks, and optoelectronic tools are a large market, and data in many fields cannot be statistically analyzed. Many small battery factories have not included their data in the statistics. Even if they do, is it true? All of these require the use of lithium, so the calculated data is definitely less than the actual demand, and my estimated data is also likely to be underestimated.

So, accurately calculating real demand is actually just an accurate error. We grasp the large field increment, continuously track the changes in consumer demand in large application fields, and correct the prediction results. Only in this way can we obtain a more objective demand prediction.

Next is the supply of lithium mines. Let me first share my estimated lithium mine supply data. In 2023, the supply of lithium carbonate will be approximately 1 million tons, in 2024 it will be 1.4 million tons, and in 2025 it will be 1.8 million tons. This means that in the next two years, there will be an additional supply of approximately 400000 tons, with an increase in demand of approximately 200000 tons, resulting in a supply surplus of about 20%.

Of course, the expected increase now will actually change in the future with the continuous changes in prices, and the estimated oversupply in the industry is about 20%. This is much better than the 100% surplus in the photovoltaic industry.

I originally wanted to write a complete analysis of lithium resource supply and demand, but considering the length is too long, I can only divide it into two parts now. This is the demand part, and I'm sure there is still a lot that I haven't written. Please forgive me, everyone. Let's make do with it.

In the next period, we are preparing to start with lithium ore supply. Recently, lithium prices have fluctuated greatly, and lithium carbonate futures have experienced a sharp drop and rise, which inevitably affects the mentality of investors. However, what I mean is that at this time, there is no need to pay too much attention to this price fluctuation. The real bottom is always quiet, and the bottom is the process of bullish people constantly cutting flesh. This process is the same in both futures and stock markets. When everyone is not very excited, then it is the starting point of a new cycle.