Where is the turning point of the "support line" for lithium prices to drop by nearly 80000 yuan/ton?

Where is the turning point of the "support line" for lithium prices to drop by nearly 80000 yuan/ton?

The mentality of most lithium industry professionals is' when will lithium prices reach their bottom ', and almost all lithium industry professionals are looking for answers.

The supply expectation has been lowered, and the trend of lithium carbonate oversupply remains unchanged

From the recent price fluctuations, under the pressure of oversupply and sustained insufficient demand, the price of lithium carbonate has been continuously falling. SMM data shows that on July 22nd, the spot price of battery grade lithium carbonate fell to 844-88300 yuan/ton, with an average price of 86350 yuan/ton.

In the short term, Zeng Yuke, a new energy researcher at Minmetals Futures, analyzed that the domestic production of lithium carbonate was at a historical high last week, with a weekly output of nearly 15000 tons according to SMM data. Please pay attention to the impact of lithium prices on the cost of purchased mines or certain integrated mines, and the production of lithium salts may decrease. The production of lithium carbonate in July may be running weakly.

From the perspective of supply sources, salt lake enterprises continue to increase their new production capacity while maintaining technological advancements and improving lithium recovery rates. Salt Lake has entered the peak season of production throughout the year, with a considerable increase in volume in the third quarter. Chinese funded enterprises continue to import African concentrates, and the monthly production of spodumene and lithium carbonate in China will continue to grow at a high level. Lithium prices are declining, and it is expected that there will be little significant growth in the recycling sector.

From the perspective of the supply and demand pattern within the year, the newly added supply has adjusted downward, but still remains surplus. Zeng Yuke analyzed that some mines have adjusted their production pace and started new projects, but the strong supply has not changed. Referring to the revised first quarter report, the global resource supply has only decreased by about 20000 tons. In 2024, the supply of lithium resources in South America, Australia, Africa, and China will increase by approximately 100000, 70000, 100000, and 110000 tons of LCE respectively.

In the medium term, Zhang Sikai, Chief Analyst of Nonferrous Metals at Minmetals Securities, stated that it is expected that the global new lithium resource production capacity will be 1.0419 million tons of LCE from 2024 to 2026, mainly from low-cost salt lake resources such as China and Argentina. In fact, the most produced lithium resource in the world in 2022 is still lithium mica, while last year it was lithium mines in Africa. However, low-cost salt lakes in China, Argentina, and Chile may be heavily produced in the next three years, and the overall production structure of lithium carbonate may change in the future

From 2024 to 2026, lithium supply will continue to be released on a large scale, especially against the backdrop of low-cost South American salt lakes. Zhang Sikai stated that a cost war for lithium carbonate is inevitable, and some high cost lithium resources may be cleared. However, in the long run, regardless of whether the smelting resources are high-grade spodumene or salt lakes recognized by the industry as having lower costs, the cost center of lithium salts will rise.

Taking Atacama Salt Lake, the largest salt lake SQM currently in production, as an example, according to its calculations, the cost of SQM fluctuated around $4000/ton LCE in 2021 and earlier. In 2022, the cost gradually increased in Zhejiang, reaching $8000/ton by 2023, which is twice the low point. Similarly, the cost of Sal de Olaroz Salt Lake increased from $4000/ton to $6000/ton by 2023.

In addition, Australian mines will collectively switch to underground mining, and the cost may reach an upward turning point in 2026-2027. The origin of lithium carbonate is still mining metals, and the trend of declining grade and rising cost is inevitable.

Three major factors affecting the turning point of lithium price demand near the "cost line"

It is understood that the production cost of lithium salts varies greatly depending on the differences in raw materials. The cost of a single ton of lithium carbonate in salt lakes is concentrated at 30000-50000 yuan/ton, which still has a significant cost advantage. The cost of a single ton of lithium carbonate in spodumene is 40000-80000 yuan/ton. The cost of producing a single ton of lithium carbonate from high-quality lithium mica ranges from 60000 to 80000 yuan/ton. The overall grade of newly built lithium mica is relatively low, and even if high-grade ore is used in the early stage, the cost of producing a single ton of lithium carbonate is close to 100000 yuan/ton.

Since the price of lithium carbonate fell from 500000 yuan/ton to 100000 yuan/ton last year, where the bottom of lithium carbonate lies and when the price turning point will come have been a long-standing topic in the industry. Based on the opinions of multiple industry insiders, 80000 yuan/ton is the mainstream cost support line. Zeng Yuke stated that the 90% percentile for the integrated cost of lithium carbonate including taxes in 2024 is between 80000 and 90000 yuan/ton.

Based on recent industry trends, data from Minmetals Futures shows that although mining prices have accelerated their decline, the overall profits from purchasing lithium mica and lithium pyroxene smelting have been below the break even point.

When the turning point of lithium prices will arrive, on the demand side, the economic feasibility of energy storage and battery technology progress in Europe and America's automotive oil and electricity prices are important factors determining the future growth rate of lithium carbonate demand.

At present, the sales growth rate of new energy vehicles in Europe and America has significantly slowed down since August last year, with a year-on-year increase of only 6.84% in sales from January to May 2024. The core reasons for the slowdown in sales of new energy vehicles in Europe and America are the reduction of subsidies, lack of popular models, and insufficient competitiveness.

The turning point in sales of new energy vehicles in Europe and America lies in when oil and electricity parity will be achieved. The biggest pain point for new energy vehicles in Europe and America is that the price of electric cars in the same class is significantly higher than that of gasoline cars. However, upon closer inspection, 84% of the cost difference comes from the power train. With the gradual expansion of the domestic lithium battery industry chain in Europe and America, whether the production cost of lithium batteries in Europe and America can continue to decrease is the key factor for the next wave of explosive demand for new energy vehicles in Europe and America.

In terms of energy storage demand, there is currently no economic feasibility in photovoltaic distribution and storage. The core issue is the short cycle life of lithium batteries and low peak valley electricity prices. Assuming a system lifespan of 15 years and a construction cost of (1800/2)+500=1400 yuan/kWh, the cost of completing one charge discharge cycle for lithium battery energy storage is 0.495 yuan/kWh (cost per kWh). However, due to the small price difference between peak and valley, the energy storage system still lacks economic viability. With the gradual realization of energy storage economy, it is expected that the proportion of energy storage matching will further increase by 10% -20%, effectively promoting the demand for lithium carbonate.

In addition, new demands such as eVOTLs (electric vertical takeoff and landing vehicles) place higher demands on battery technology, and advances in battery technology will open up more space for lithium battery applications. The breakthrough in battery technology can also further open up old demand scenarios, such as new energy vehicles.

The competition for lithium resources' going global 'is still the trend

Based on data from various sources, it is predicted that the pattern of excess supply of lithium carbonate will not change within 2-3 years, but in the long run, there is still huge development space for lithium resources.

The Global Key Minerals Outlook (2024) released by the International Energy Agency states that it is expected that the demand for lithium resources will increase significantly by 2050, and by 2035, the currently announced mining project capacity will only be able to meet 50% of lithium demand.

According to the official website of the Ministry of Natural Resources, citing Tim Gould, Chief Energy Economist of the IEA, the data for 2023 is still "impressive", especially for some lithium focused companies, whose investments have increased by around 60%.

In fact, in recent years, in order to fully promote a new round of breakthrough strategic actions in mineral exploration, promote the exploration and development of lithium resources, increase reserves and production, and promote the high-quality development of the lithium battery new energy industry, the Ministry of Natural Resources has actively promoted the transfer of lithium ore blocks and increased the supply of lithium ore sources.

According to data from the Ministry of Natural Resources, the overall investment in lithium exploration in China has shown an increasing trend, and the national lithium exploration rights have resumed growth in the past two years. Since the beginning of this year, the Xigang spodumene mine in Guangchang County, Jiangxi Province, the Snowei new energy lithium mine in Yajiang, the Jinai'er Lake lithium mine in Xitai, and the Murong lithium mine in Yajiang County, Sichuan Province have successively passed the review of the "Mining Geological Environment Protection and Land Reclamation Plan" (hereinafter referred to as the "Protection Review"). It is reported that the Snowway New Energy Lithium Mine is backed by Ningde Times, and the exploration rights of the Murong Lithium Mine belong to Huirong Mining, with Shengxin Lithium Energy indirectly holding 15.1% of the shares.

According to an analysis by a journalist from Caixin News Agency, lithium mining enterprise personnel believe that the above-mentioned protection plan is necessary during the exploration right stage in order to carry out work. After passing the protection review, it is determined based on the scope and workload of processing mining rights, and generally takes at least one and a half years.

At the same time, from the perspective of resource endowment, foreign lithium resources are still the main source of supply, and China's dependence on foreign lithium raw materials is still relatively high. According to data from the Lithium Industry Branch of the China Nonferrous Metals Industry Association, nearly 60% of the demand for imports will be in 2023.

According to information from USGS and the Department of Natural Resources, although China's lithium reserves are increasing, with the continuous deepening of global lithium resource exploration, the proportion of China's lithium resources in the total global resources is still declining. In 2023, China's lithium reserves will account for 10.8% of the global total, ranking fourth in the world, far lower than the 25.9% 10 years ago.

However, global lithium resources are moving towards "nationalization", which has also led to consecutive suppression of overseas lithium mine investments by the "lithium mining giants". Recently, due to Chile's strategic adjustment of lithium resources, Tianqi Lithium has signed a "public-private partnership" agreement with SQM, a subsidiary of Tianqi Lithium. Tianqi Lithium's equity in Atacama Salt Lake, the world's highest lithium salt lake production in 2023, may be further diluted. After unsuccessful reconsideration of 9 cancelled Mexican lithium mining concessions, Ganfeng Lithium has initiated international arbitration, and the latest confirmed arbitration case has been officially registered.

The obstacles and pressures faced by Chinese companies in investing in overseas lithium resources are self-evident. From a global perspective, due to the influence of North American IRA/Australian FIRB and other factors (the United States and Canada do not allow Chinese companies to hold shares in domestic lithium mines; the Chilean government requires mandatory control (51%+) of domestic lithium resources), currently 66.9% of lithium resources worldwide cannot be controlled by Chinese companies.

Going global is still the trend. From a medium-term perspective, before significant geological exploration results are achieved in other regions, Argentina, Brazil, Africa (Zimbabwe, etc.) and other places are the most preferred destinations for Chinese enterprises to go abroad, while Argentina, as a 10.4% global lithium reserve region, should be given special attention.

It is also suggested that the current international mining merger and acquisition environment is complex, and the importance of the development of the new energy industry has surpassed the industry itself, gradually rising to competition between countries. As the vanguard in implementing major national strategies, central enterprises should play a leading role, seize the opportunity at the bottom of the current lithium carbonate price cycle, establish a large fund for overseas mergers and acquisitions of lithium mines, and contribute greater strength to enhancing China's international competitiveness in new energy and promoting the sustainable development of China's new energy industry.