Current Status and Future Prospects of the Global Lithium Industry Chain in 2024 year

Current Status and Future Prospects of the Global Lithium Industry Chain in 2024 year

With the vigorous development of the global new energy industry, the demand for lithium resources is rapidly increasing, and a wave of lithium resource grabbing is sweeping across the world. Major economies are increasingly concerned about the supply security of lithium resources, and even China, the United States, Japan, and the European Union have listed it as a strategic or key mineral. Studying and analyzing the distribution characteristics and market development trends of global lithium resources can help better grasp the global lithium resource market situation and future development trends. This article introduces the development of the global lithium industry chain from five aspects: firstly, the global lithium resource reserves and distribution; Secondly, the global supply and demand pattern of lithium resources; The third is the trend and prediction of lithium resource prices; Fourthly, the recent policy review of major lithium resource domestic industries; The fifth is the outlook for the global lithium industry.

Outlook for the future

1. The vigorous development of new energy vehicles in various countries will continue to maintain the dominant position of lithium resources demand for lithium batteries.

2. The trend of intensive adjustments in overseas mineral policies will continue, and there are security risks in China's lithium supply chain.

In the short term, profit margins are still concentrated on the resource side, and in the long run, overcapacity drives profits to shift downstream.

Africa will become a new arena for Chinese enterprises to invest in overseas lithium mines.

5. Going global together and extending the industrial chain investment chain will become a new trend for Chinese enterprises to invest in lithium mines overseas.

1、 Global lithium resource reserves and distribution

The global lithium resources are mainly concentrated in South America, Australia, and China. According to data from the United States Geological Survey, the global lithium resource reserves in 2022 were 156 million tons of lithium carbonate equivalent (LCE), a year-on-year increase of 18.2%. Global lithium resources mainly exist in three forms, namely spodumene (50%), salt lake lithium (40%), and lithium mica (10%). Although lithium resources are widely distributed globally, their reserves are concentrated, mainly in South America, Australia, and China.

South America region: Chile (36%), Argentina (10%), and Brazil (1%) together account for 47% of the world's total lithium reserves. Lithium resources are mostly salt lake lithium, with high resource quality. In recent years, the technology of extracting lithium from brine has been continuously improving, and the production has been continuously increasing. However, due to strict environmental approval, high altitude, scarce freshwater resources, and insufficient supporting facilities, the development difficulty and cost are high.

Australia: Lithium reserves account for 24% of the world's total, mostly consisting of spodumene, which is currently a relatively easy form to develop. Australia has a developed mining industry, complete laws and regulations, and excellent infrastructure. In recent years, the development of lithium resources in Australia has been accelerating, but there is also a shortage of labor and equipment. The production speed of new or resumed production capacity is lower than expected.

China: Lithium resource reserves account for 8% of the world's total, of which 80% are salt lake lithium, mainly concentrated in Qinghai, Xizang and Hubei, and the remaining 20% are lithium mica, mainly concentrated in Shanxi.

Africa: Lithium resources are also relatively abundant, with high ore grades, mainly distributed in countries such as the Democratic Republic of Congo, Zimbabwe, and Mali. Among them, Manono lithium mine, Goulamana lithium mine, and Arcadia lithium mine are all world-class lithium mineral resources. In the past two years, lithium mining projects on the African continent have been favored by Chinese companies.

2、 Global lithium resource supply and demand pattern

（1） Upstream: Global lithium mining supply pattern

Global lithium mining production has accelerated in the past two years. The rapid development of the new energy industry has driven a rapid increase in demand for lithium batteries, and in recent years, there has been a significant increase in global lithium mining production. According to data from the United States Geological Survey, from 2016 to 2022, except for the decline in lithium prices in 2019 and the outbreak of the pandemic in 2020 that hindered mining production, lithium production in mines has maintained positive growth in all other years, increasing from 228000 tons of LCE in 2016 to 780000 tons of LCE in 2022, with an average annual compound growth rate of 22.8%. In the past two years, due to the explosive growth of new energy vehicle sales, global mining lithium production has also grown rapidly, reaching 642000 tons of LCE and 780000 tons of LCE in 2021 and 2022, with growth rates of 29.7% and 21.5%, respectively.

Figure 1 Global lithium mine production and growth rate from 2018 to 2022

Data source: United States Geological Survey (USGS)

Australia, Chile, and China are the top three producers of lithium resources globally. With high-quality lithium ore resources, continuously optimized mining technology, and relatively convenient supporting facilities, Australia, Chile, and China are not only major lithium ore reserves but also production countries. According to data from the United States Geological Survey, the lithium production of mines in the three countries in 2022 was 366000 tons of LCE, 234000 tons of LCE, and 114000 tons of LCE, respectively, an increase of 10.3%, 37.8%, and 35.7% year-on-year.

Figure 2 Distribution of Global Lithium Metal Production in Mines in 2022

Data source: United States Geological Survey (USGS)

（2） Midstream: Global Lithium Salt Supply Pattern

Lithium salts are core products extracted from lithium ores (spodumene, lithium mica) and salt lake lithium. Lithium salts include lithium hydroxide, lithium carbonate, and lithium chloride, among which lithium hydroxide and lithium carbonate are important lithium salts for manufacturing lithium batteries and are currently the most in demand primary lithium salt products.

More than 70% of the global lithium salt production capacity is concentrated in China. China is not only the world's largest market for lithium salt demand, but also the world's largest producer. According to incomplete statistics, 70% of the global production capacity of lithium carbonate and 77% of the production capacity of lithium hydroxide are concentrated in China. Due to the fact that global lithium resources are mainly concentrated in South America and Australia, China's lithium salt industry has formed a model of "overseas resources+domestic processing". From a micro perspective, domestic leading lithium companies (such as Ganfeng Lithium, Tianqi Lithium, etc.) use Australian lithium concentrate for production, while foreign leading companies may set up factories in China or seek domestic enterprises for outsourcing.

In 2022, China's lithium carbonate production capacity and output: According to statistics from the Lithium Salt Industry Branch of the China Inorganic Salt Industry Association, China's lithium carbonate production capacity was 436000 tons per year, a year-on-year increase of 12.2%; The output was 326000 tons, a year-on-year increase of 39.3%; Net imports amounted to 126000 tons, a year-on-year increase of 71.7%, accounting for 28% of China's total lithium carbonate supply. In terms of capacity distribution, Jiangxi (44.3%), Qinghai (19.5%) and Sichuan (18.2%) gather 82% of China's lithium carbonate capacity, and the rest are distributed in Hebei, Shandong and Xizang.

Figure 3 Distribution of Lithium Carbonate Production Capacity in China (2022)

Data source: Lithium Salt Industry Branch of China Inorganic Salt Industry Association

In 2022, China's lithium hydroxide production capacity and output: According to statistics from the Lithium Salt Industry Branch of the China Inorganic Salt Industry Association, China's lithium hydroxide production capacity was 304000 tons per year, a year-on-year increase of 21.3%; The output was 239000 tons, a year-on-year increase of 35.5%; Net exports were 90000 tons, a year-on-year increase of 28.9%, accounting for 38% of China's total lithium hydroxide production. From the perspective of production capacity distribution, Jiangxi (47.4%) and Sichuan (42.7%) together account for 90% of China's lithium hydroxide production capacity, while the rest is distributed in Hebei, Shandong and other places.

Figure 4 Distribution of Lithium Hydroxide Production Capacity in China (2022)

Data source: Lithium Salt Industry Branch of China Inorganic Salt Industry Association

（3） Downstream: Global Lithium Resource Demand Pattern

The global demand for lithium resources is growing rapidly, with over 80% of lithium resources used for lithium battery production, and the proportion continues to expand. In recent years, the new energy vehicle industry has experienced explosive growth, with a surge in demand for lithium batteries. According to the forecast data from Minmetals Securities, the global demand for lithium resources in 2022 will increase by 39.0% year-on-year to 708000 tons of LCE. Among them, the demand for lithium batteries will increase by 50.6% year-on-year to 583000 tons of LCE, accounting for 82.3% of the total demand and an increase of 6.4 percentage points compared to the previous year. According to forecast data, the growth point of future lithium resource demand will still be in lithium batteries. By 2025, the total global demand for lithium resources will reach 1.825 million tons of LCE, which is 2.6 times that of 2022. Among them, the demand for lithium batteries will account for 92.3%, an increase of 10 percentage points from 2022.

Figure 5: Global Lithium Resource Demand Structure in 2022

Data source: Minmetals Securities

Lithium carbonate is the mainstream product in lithium salt trade, accounting for 77%. According to the latest data from the UN Comtrade Database, the total global lithium salt imports in 2021 were approximately 248000 tons, a year-on-year increase of 27.2%. Among them, the total import of lithium carbonate was approximately 190000 tons, a year-on-year increase of 34.6%, accounting for 77% of the total global lithium salt imports. From the perspective of lithium carbonate import structure, China (43%), South Korea (22%), and Japan (11%) are the top three lithium carbonate importing countries in the world, accounting for a total import volume of 76%; Next are the United States (6%), Russia (5%), and the Netherlands (4%); The total import volume of over 80 other countries accounts for only 9%.

Figure 6: Global Lithium Carbonate Import Structure in 2021

Data source: UN Comtrade Database

Note: As of the deadline for this article, the United Nations Trade Database's trade data for 2022 is not yet complete. The data for 2021 is used here.

3、 Trend and Prediction of Lithium Resource Prices

At present, lithium resources are mainly priced through long-term agreements, while futures pricing and auction pricing are just beginning. Lithium resources belong to a typical oligopoly monopoly pattern. Currently, lithium resource trade is mainly based on long-term agreement pricing models, and international lithium industry giants influence lithium resource trade prices through long-term agreements. In 2021, trading platforms such as the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) adopted futures pricing models, and after two years of development, the influence of Western countries on lithium resource prices gradually became apparent. In the same year, the pricing model for lithium ore auctions emerged (such as Pilbara's multiple auctions of lithium resources), which affected short-term lithium resource prices. Although the pricing model of lithium resources is constantly changing, the discourse power of lithium resource pricing still lies in the resource side, and the influence of the consumer side on international lithium resource prices is still weak.

Lithium prices have fallen sharply and gradually returned to a rational range. With the rapid increase in downstream demand, lithium prices have risen accordingly. Since January 2021, lithium prices have been soaring and the upward trend continued until the end of December 2022. Taking the price of 99.5% battery grade lithium carbonate in China as an example, it has continued to rise from 50000 yuan/ton in January 2021 to a peak of 570000 yuan/ton in December 2022, an increase of 10 times in two years. It is worth noting that, in addition to factors driven by strong downstream demand, intentional hoarding by traders causing a shortage of market supply is another major reason for the rapid rise in prices.

However, as we enter 2023, the price of lithium carbonate will rapidly decline. On the one hand, in 2022, the number of overseas lithium mine production projects continues to increase, lithium processing capacity continues to expand, and the supply of lithium resources increases; On the other hand, the slowdown in sales growth of new energy vehicles in 2022, coupled with the withdrawal of China's new energy vehicle subsidy policy from 2023, has led to a decrease in market expectations. The bidirectional changes in supply and demand have raised concerns in the market about lithium oversupply, leading to a decline in lithium prices starting in 2023. In addition, traders began to sell off a large number of inventories, and the price foam was gradually squeezed out, accelerating the return of lithium prices to a rational range. China's 99.5% battery grade lithium carbonate has dropped from 510000 yuan/ton in early January 2023 to 260000 yuan/ton on March 28, a decrease of 49%. From the current trend of market supply and demand changes, it is expected that lithium prices will decline throughout 2023, and the market expects the price equilibrium point to remain at the level of 200000 yuan/ton.

Figure 7 Price trend of 99.5% battery grade lithium carbonate in China (as of March 28, 2023)

Data source: Wind

4、 Recent Policy Review of Major Lithium Resources Domestic Industry

Supported by strong downstream demand, the battle for lithium mineral resources continues to intensify, and resource rich countries also consider lithium as a strategic key mineral resource, protected by policies that restrict mining and prohibit exports. The intensive adjustment of industrial policies has increased the unpredictability of lithium ore and lithium salt trade and investment. This article lists the recent industrial policies of major lithium resource countries as follows:

Canada: In order to protect national security and economic interests, the Canadian government has implemented strict scrutiny and restrictions on overseas companies investing in Canadian lithium mining companies. According to the Canadian Foreign Investment Act, foreign investors are not allowed to make direct investments or acquire key corporate assets in Canada unless approved by the Canadian government. Based on this, the Canadian government has repeatedly rejected foreign companies' acquisition requests for Canadian lithium mining companies in the past few years. For example, the Canadian government rejected the proposal of China's Tianqi Lithium Industry to acquire Canadian SQM Mining Company in 2018, and rejected the proposal of Australian mining company Albemarle to acquire Canadian lithium mining developer Nemaska in 2019. In addition, in October 2022, both Industry Canada and Natural Resources Canada stated that starting from October 28, 2022, Canada will not approve major transactions of foreign state-owned enterprises in principle. Subsequently, on November 2, 2022, the Canadian government demanded that three Chinese companies immediately divest their interests in three key mining companies in Canada. Among them, it involves three listed companies: Zhongkuang Resources, Zangge Mining, and Shengxin Lithium Energy.

Zimbabwe: In order to boost fiscal revenue, Zimbabwe plans to collect royalties from lithium miners starting from January 1, 2023, with a tax rate of 5%. In December 2022, a policy will be introduced to prohibit the export of unprocessed lithium mines in order to crack down on some mine owners who illegally mine lithium and transport it out of the country's borders. In early January 2023, Zimbabwe issued the "2023 Basic Mineral Export Control (Unprocessed Basic Minerals) Order", which prohibits the export of all mineral raw ores unless special exemptions are obtained. The Zimbabwean government has completely banned the export of mineral raw materials, with the aim of encouraging as much mineral processing as possible within Zimbabwe, increasing the added value of minerals, ensuring the maximization of the value of exported mineral products, creating more employment opportunities for Zimbabwe, increasing industrial investment, and improving labor skills.

South American Lithium Triangle: In October 2022, the "Lithium Triangle" consisting of Argentina, Bolivia, and Chile is considering establishing a "Lithium OPEC" to reach a "price agreement" in the face of fluctuations in lithium mine values, thereby affecting lithium prices in the same way that OPEC sets production levels to affect per barrel crude oil prices. Through this mechanism, on the one hand, it promotes lithium mining in the lithium triangle region, and on the other hand, it enhances the self-sufficiency of South American automobiles by developing the automotive industry in Brazil and Mexico.

5、 Outlook for the Global Lithium Industry

The vigorous development of new energy vehicles by various countries has enabled lithium batteries to continue to maintain their dominant position in lithium resource demand. Driven by factors such as global dual carbon targets and energy security, new energy vehicles are the development trend of the global automotive industry. Currently, many governments worldwide have introduced plans to ban the sale of fuel vehicles to encourage the development of the new energy vehicle industry. The average market penetration rate of new energy vehicles worldwide in 2022 is about 12%, and there is still significant room for future growth. Therefore, the significant development of new energy vehicles will promote lithium batteries to maintain their dominant position in lithium resource demand.

The trend of intensive adjustments in overseas mineral policies will continue, and there are safety hazards in China's lithium supply chain. As mentioned earlier, in recent years, due to pressures such as economic recession, dual carbon targets, and resource security, some lithium mining resource countries have seen a rise in trade protectionism and resource nationalism, leading to intensive adjustments in lithium mining trade and investment policies. Looking ahead to the future, on the one hand, the competition for lithium mining rights remains fierce, and the overall industrial policy is adjusted towards increasing royalties and reducing raw ore exports to extend the lithium industry chain and retain more industry chain value. On the other hand, Western countries represented by the United States and Canada are seeking to reach key mineral agreements with countries such as Japan, the United Kingdom, South Korea, and Australia, in order to reduce China's influence in key mineral fields and overturn China's dominant position in the mining industry. These actions not only increase the unforeseeable operational risks of Chinese mining enterprises, but also enhance the supply risks of lithium resources in China.

In the short term, profit margins are still concentrated on the resource side, and in the long run, overcapacity drives profits to shift downstream. After a round of skyrocketing and plummeting lithium prices, the vast majority of profits in the lithium industry chain have remained on the resource side. Currently, among the announced enterprises, driven by high lithium prices, the net profit of upstream enterprises owning lithium mines has mostly increased by more than 2 times year-on-year, with the highest reaching 6-10 times; On the other hand, although downstream enterprises in the industrial chain have also achieved significant growth in net profit, most of them are within 2 times. In the short term, even though it is expected that lithium prices will decline to 200000 yuan/ton, the pricing power of lithium resources will still be concentrated on the resource side, and profit margins will be mostly concentrated here. But in the long run, on the one hand, with the acceleration of mining and the rapid expansion of midstream production capacity, there will be an oversupply of lithium resources, and lithium prices will gradually return to a rational range; On the other hand, with the gradual improvement of the pricing model for lithium resources, the ability of the resource side to dominate pricing power will be weakened, and profits will show a trend of shifting to the middle and lower reaches of the industry chain. The profit distribution of the entire industry chain will be more reasonable.

Africa will become a new arena for Chinese enterprises to invest in overseas lithium mines. At present, the competition for lithium resources in lithium rich areas such as the South American Lithium Triangle and Australia has entered a white hot state. Discovered lithium mines may be locked down by the government or monopolized by enterprises, making it difficult for companies to obtain mining rights later on. Africa has abundant lithium reserves, but due to outdated exploration technology and lithium extraction processes, coupled with limited funding, most of the resources are in a state of waiting for development. Chinese enterprises can form a benign complementarity with Africa by leveraging their financial and technological advantages, coupled with favorable conditions such as relaxed local mineral regulatory mechanisms and long-term friendly relations between China and Africa. In the future, Africa can become a new arena for Chinese enterprises to invest in overseas lithium mines.

Joining forces to go global and extending the investment chain length of the industrial chain will become a new trend for Chinese enterprises to invest in lithium mines overseas. Lithium has been included in the list of "strategic key minerals" by many countries, and their efforts to protect lithium resources have increased. Therefore, Chinese enterprises investing in the lithium industry overseas not only face significant capital pressure, but also face significant risks of industrial policy changes. To this end, Chinese enterprises can increase cooperation with domestic upstream and downstream enterprises, form upstream and downstream interest public bodies, jointly bid for overseas projects, go global together, invest in building the entire lithium mining industry chain in target countries, leverage their respective professional advantages, and achieve the sharing of risks and benefits