Analysis of the Nonferrous Metals Industry in 2024 ( part 2)

Analysis of the Nonferrous Metals Industry in 2024 ( part 2)

6. China's rare earth resource reserves rank first in the world; In 2023, the concentration of China's rare earth industry and its ability to optimize resource allocation will further improve, but the prices of various segmented rare earth products will continue the downward trend of the previous year, with varying degrees of decline. Rare earth is an important non renewable strategic resource and an essential element for transforming traditional industries, developing emerging industries, and defense technology industries. As a major rare earth country, China has the world's largest reserves of rare earth resources. According to data from the United States Geological Survey, in 2023, China's rare earth reserves will be approximately 44 million tons, accounting for 35% of the world's rare earth reserves. There are significant differences in the geographical distribution of different types of rare earth resources, and China's rare earth resources as a whole exhibit a characteristic of "heavy in the south and light in the north". Represented by the Baiyun Ebo mine in the north, it mainly produces light rare earths, with reserves exceeding 80% of the national total. The southern mining areas are relatively scattered, mainly consisting of ion type rare earth mines distributed in southern provinces and regions such as Jiangxi, Guangdong, Fujian, Hunan, and Guangxi, with heavy rare earths as the main source. Their reserves account for 90% of China's heavy rare earth resources. China has formed three major production bases, namely Baotou in Inner Mongolia, Liangshan in Sichuan (for light rare earths), and Ganzhou in Jiangxi Province (for medium and heavy rare earths), with complete mining, smelting, separation technologies, equipment manufacturing, material processing, and application industrial systems. They can produce more than 400 varieties and 1000 specifications of rare earth products. Due to the rapid exploitation and consumption of rare earth resources, China has implemented strict quota controls on domestic rare earth mining and separation. In 2023, the Ministry of Industry and Information Technology and the Ministry of Natural Resources issued control targets for the total amount of rare earth mining and smelting separation, which are 255000 tons and 243850 tons respectively, an increase of 45000 tons and 41850 tons from the 2022 targets, with an increase of about 20% for both. The upward adjustment of China's mining indicators in 2023 will have a certain degree of suppression on rare earth prices. In 2024, the first batch of total control indicators for rare earth mining, smelting and separation issued by the Ministry of Industry and Information Technology and the Ministry of Natural Resources increased by 12.5% and 10.4% respectively compared to the first batch of indicators in 2023, and the growth rate decreased compared to the same batch of indicators in 2023 (about 20% and 18%). In terms of prices, in 2022, the rare earth price index showed a fluctuating downward trend due to multiple factors such as international geopolitical games, weak global economic growth, and market supply and demand relationships. As of the end of 2022, the rare earth price index has decreased by 72.5 points to 297 points compared to the beginning of the year. Since 2023, the overall price of rare earth products has continued to fluctuate and decline. As of the end of 2023, the rare earth price index has decreased by 99 points to 198 points compared to the beginning of the year. At the end of March 2024, the rare earth price index further dropped to 156 points. There are differences in the price trends of various segmented rare earth products. From the fluctuation of prices of praseodymium neodymium rare earth products, it can be seen that in 2023, the prices of praseodymium neodymium products will experience a significant decline from February to April and then fluctuate slightly at a low level. In 2023, the average prices of praseodymium oxide (Shanghai, 99.0%~99.5%) and neodymium oxide (Shanghai, 99.0%~99.9%) with a purity greater than 99% will decrease by 34.25% and 40.95% year-on-year to 457300 yuan/ton and 454900 yuan/ton, respectively. From the fluctuation of prices of lanthanide cerium rare earth products, it can be seen that the market heat of lanthanide cerium products is low, and the current situation of excess lanthanide cerium products in China is difficult to change in the short term. In 2023, the overall market for lanthanum cerium products will continue to be weak, but there will be some differentiation after October 2023. Compared with the sustained low price of lanthanum oxide products, the price of cerium oxide products has rebounded after October, and the annual decline has narrowed. In 2023, the average prices of lanthanum oxide (Shanghai, 99.0%~99.9%) and cerium oxide (Shanghai, 99.0%~99.5%) decreased by 40.70% and 14.14% year-on-year, respectively, to 3920 yuan/ton and 5830 yuan/ton. From the price fluctuations of dysprosium and terbium products, it can be seen that in 2023, the overall prices of dysprosium products will first suppress and then rise, with a large fluctuation range, and then rebound after June; As of the end of 2023, the price of dysprosium oxide (Shanghai, 99.5%~99.9%) has decreased by 1.40% to 2470 yuan/kg compared to the end of last year. The prices of terbium products will continue to decline throughout 2023; As of the end of 2023, the price of terbium oxide (Shanghai, 99.9%~99.99%) has decreased by 47.21% to 7370 yuan/kg compared to the end of last year. As of the end of February 2024, the prices of praseodymium neodymium products and dysprosium terbium products have further declined compared to the end of last year, with a decrease of about 20% and 30% respectively, but the prices of lanthanide cerium rare earth products have rebounded. With the establishment of China Rare Earth Group Co., Ltd. (hereinafter referred to as "China Rare Earth Group") at the end of 2021, the rare earth industry in China is accelerating a new round of integration, and the industry has entered a new stage and pattern of intensive development led by four major rare earth groups: China Rare Earth Group, China Northern Rare Earth (Group) High tech Co., Ltd., Xiamen Tungsten Industry Co., Ltd. (hereinafter referred to as "Xiamen Tungsten"), and Guangdong Rare Earth Industry Group Co., Ltd. (hereinafter referred to as "Guangdong Rare Earth Group"), with northern light rare earths and southern medium heavy rare earths as regional resource distribution. In September 2023, Xiamen Tungsten Industry signed a "Cooperation Framework Agreement" with China Rare Earth Group, and both parties will establish two joint ventures. Among them, China Rare Earth Group holds 51% of the shares and Xiamen Tungsten Industry holds 49%. They jointly operate rare earth mines and rare earth smelting separation industries controlled by Xiamen Tungsten Industry, and carry out extensive cooperation in the development, smelting separation, deep processing, and innovation of rare earth mining in Fujian Province. In December 2023, Guangdong Guangsheng Holdings Group Co., Ltd. (hereinafter referred to as "Guangsheng Group") signed an equity transfer agreement with China Rare Earth Group, intending to transfer 100% of Guangdong Rare Earth Group's equity to China Rare Earth Group free of charge. As of February 2024, Guangsheng Group and China Rare Earth Group have respectively obtained approval from the State owned Assets Supervision and Administration Commission of Guangdong Province and the State owned Assets Supervision and Administration Commission of the State Council. After the transfer is completed, the rare earth business under Guangdong Rare Earth Group will be transferred to China Rare Earth Group. Overall, the concentration of China's rare earth industry and its ability to optimize resource allocation have further improved in recent years. The rare earth industry in China is facing both development opportunities and challenges. On the one hand, in the context of "carbon peak" and "carbon neutrality", the pace of China's traditional fossil energy conversion to new energy is accelerating, and downstream application industries are developing rapidly, such as wind power and photovoltaic installed capacity, the penetration rate of new energy vehicles is increasing, and the development of robot related industries has received strong support from the state. Rare earth, as a key element widely used in the above-mentioned fields, the expansion of downstream terminal markets will be conducive to the healthy development of the rare earth industry in the future, and the strategic position of rare earth resources will become increasingly prominent. On the other hand, China's rare earth industry still needs to overcome many serious problems such as overcapacity in rare earth primary products, a shortage of rare earth products with advanced technology and high added value, and increasingly severe safety and environmental pressures. It is expected that in 2024, after experiencing continuous price fluctuations since 2022, China's rare earth prices are expected to receive support due to the slowdown in the growth rate of total supply and the increase in demand. 7. China's laterite nickel ore resources are relatively scarce, and the resources have long relied on overseas imports. In 2023, the global nickel industry will shift towards a comprehensive oversupply, with refined nickel supply exceeding demand, and nickel prices will rationally decline from high levels, showing an overall downward trend. After entering 2024, nickel prices have rebounded slightly, but there is still a downside risk overall. Nickel has good corrosion resistance, high temperature resistance, rust prevention and other properties, so it is widely used in the steel field such as stainless steel and alloy steel. In addition, nickel plating has also been applied in the field of batteries, mainly including nickel hydrogen batteries, cadmium nickel batteries, and nickel manganese batteries. According to the World Bureau of Metal Statistics (WBMS) data, in 2023, the nickel industry will shift towards a comprehensive oversupply, with global refined nickel production of 3.4479 million tons, consumption of 3.1758 million tons, and oversupply of 272100 tons. China is a major producer of stainless steel in the world, and one of the main raw materials for high nickel iron stainless steel produced from laterite nickel ore. Domestic nickel ore resources are relatively scarce and mostly sulfide ores, requiring the import of large amounts of nickel sand ore and concentrate every year to meet domestic demand. In 2022, due to the reflux of nickel iron from Indonesia, the operating rate of nickel iron in China has decreased, resulting in a year-on-year decrease in imported nickel ore and concentrate. In 2023, the country will promote economic recovery, and downstream steel mills will increase their production capacity day by day. The demand for products will be transmitted to the raw material end, and the demand for imported nickel will show steady growth. In the current period, the import of nickel ore has rebounded, and the total import volume (according to data from the General Administration of Customs of China) is 44.819 million tons (with the Philippines accounting for 86.38% of the import volume), an increase of 4.5782 million tons year-on-year; The total import volume of nickel iron is about 8.4498 million tons, an increase of 2.5536 million tons year-on-year, of which the total import volume of nickel iron from Indonesia is about 7.9151 million tons (an increase of 46.84%). In terms of price, in February 2022, Russia, as one of the world's important nickel producers and exporters, experienced irrational fluctuations in the nickel market due to the outbreak of the Russia Ukraine war. LME nickel prices rapidly rose to a historical high of $48226.00 per ton. As market panic gradually subsides and nickel prices gradually return to rationality, as of the end of June 2022, LME nickel prices have dropped to $19100.00 per ton. After entering July 2022, nickel prices fluctuated at a low level due to market expectations restricting Russian nickel exports and Indonesia imposing tariffs on low-grade nickel products; Later, as the pace of interest rate hikes by the Federal Reserve slowed down, nickel prices began to strengthen significantly. After entering 2023, with the smooth operation of the TSMC nickel project by Qingshan Holdings Group Co., Ltd., and the continuous increase in secondary nickel raw material production, coupled with poor performance from downstream demand sides such as stainless steel, there will be an oversupply of primary nickel, and nickel prices will rationally fall from high levels, showing an overall downward trend. Downstream stainless steel inventory has reached a historic high, as steel mills' demand for nickel raw materials continues to weaken under pressure from inventory and sales. Against the backdrop of oversupply, the profit margins of the nickel industry chain are being squeezed from bottom to top. At the beginning of 2024, due to the slowdown of mining progress in Indonesia, nickel ore prices remained firm, and coupled with the tightening of the supply margin of nickel pig iron products, LME nickel prices slightly rebounded. In the future, global nickel production capacity will accelerate, but facing the slow recovery of the global economy and sluggish terminal consumption, nickel may still be in a supply-demand imbalance state in 2024, and there is still a risk of nickel price decline.

8. There is a high demand for cobalt in the Chinese cobalt market, which mainly relies on imports to meet the demand. The incremental demand for power batteries is significant; However, since the second half of 2022, cobalt salt prices have shown a rapid downward trend due to the impact of economic cycles and supply and demand situations. Cobalt is an important strategic material and a non renewable resource. Its mineral resources are mostly distributed in countries such as the Democratic Republic of Congo, Australia, and Indonesia. According to data from the United States Geological Survey, global cobalt production in 2022 and 2023 will be approximately 197000 tons and 230000 tons, respectively, with a year-on-year increase of 16.75% in 2023; Congo (Kinshasa) remains the largest producer of cobalt ore, accounting for over 70% of global production in 2023. China has scarce cobalt resources, low cobalt ore grades, and a low proportion of cobalt production worldwide. However, China is the world's largest producer of refined cobalt, accounting for 75% of global refined cobalt production in 2023. As a major consumer of cobalt, China's domestic cobalt production cannot meet domestic demand and mainly relies on imports from the Democratic Republic of Congo. According to data from the General Administration of Customs of China, the import volume of cobalt ore sand and concentrate in China was 26300 tons and 16900 tons from January to October 2022 and 2023, respectively. The import volume from January to October 2023 decreased by 23.26% compared to the same period in 2022, mainly due to the continued weak performance of downstream consumer battery demand for cobalt ore in China since the second half of the year, and the accumulation of cobalt ore inventory leading to a decrease in import volume. In terms of consumption, the demand for cobalt is mainly concentrated in the fields of consumer batteries and power batteries, such as LCO cathode materials for consumer batteries and ternary cathode materials for power batteries. The downstream industries of consumer electronics such as smartphones, wearable devices, tablets, PCs, etc. have a huge scale, and the demand for cobalt salts from the consumer batteries they use has formed a certain support. However, since 2022, they have been affected by the slowdown in China's consumer demand growth. According to Antaike's statistics, with the growth of global sales of new energy vehicles, the demand for power batteries accounts for over 60%. New energy passenger vehicles, especially pure electric passenger vehicles, have high requirements for endurance and a huge demand for high-energy density power lithium batteries. Ternary lithium in power lithium batteries has a higher energy density due to its cobalt content, which has been highly recognized by the market. Its high demand and market share have driven up the demand for positive electrode materials and stimulated the demand for cobalt salts. In the future, pure electric vehicles are expected to continue to grow globally, and China is making every effort to promote the popularization of pure electric vehicles. Its market share is expected to continue to expand. In terms of sales prices, the speed and magnitude of fluctuations in cobalt salt prices have been significant in recent years. Since the second half of 2022, due to the impact of economic cycles and supply and demand, especially the overall weak sales of high-end digital consumer products such as demand side smartphones, cobalt salt prices have shown a rapid downward trend. As of the end of 2022, the prices of domestically produced cobalt trioxide (≥ 72%) and domestically produced cobalt sulfate (≥ 20.5%) in China were 198.25 yuan/kg and 47.75 yuan/kg, respectively, a decrease of about 50% compared to the end of 2021. In 2023 and January February 2024, the prices of major raw materials and products in China's battery materials industry fluctuated downward, and the price of cobalt salts remained in the downward range. As of the end of February 2024, the prices of domestically produced cobalt trioxide (≥ 72%) and domestically produced cobalt sulfate (≥ 20.5%) were 132.50 yuan/kg and 31.65 yuan/kg, respectively. Looking ahead to 2024, the cobalt industry is still in a state of oversupply, and the trend of price decline has not improved significantly. With the slowing development of the global electric vehicle industry, the prices of major cobalt products in China will continue to operate at a low level and may be continuously impacted by the release of new production capacity.

9. Lithium metal has now entered the ranks of important industrial metals worldwide, with abundant lithium resources, but China's lithium resources are still mainly imported. Since 2023, the lithium industry has shown a state of oversupply, and the overall price of battery grade lithium carbonate has entered a downward channel; After the supply is cleared, lithium prices are expected to rebound, but the expected price increase is still relatively limited. Global lithium resources are abundant and widely distributed, mainly existing in the form of brine type deposits and hard rock type deposits. According to data from the United States Geological Survey, as of the end of 2023, the global lithium resources will be 97.32 million tons of metallic lithium equivalent, equivalent to approximately 518 million tons of lithium carbonate equivalent (LCE). The global lithium resources are mainly distributed in regions such as Chile, Australia, and Argentina. China's lithium resources account for about 8% of the global lithium resources, and the resources are relatively scarce. In addition, due to the high impurities and low lithium ion concentration in China's salt lakes, subsequent lithium extraction and processing are difficult. In addition, China's hard rock lithium ore reserves are small, so lithium resources are mainly imported. According to statistics from the Lithium Industry Branch of the China Nonferrous Metals Industry Association, in 2023, China's imports of lithium concentrate will increase by 41% year-on-year to 4.01 million tons, mainly from countries such as Australia, Brazil, and Zimbabwe; During the same period, the net import of lithium carbonate was 149100 tons, a year-on-year increase of about 18.6%. Lithium resources can be initially extracted and processed multiple times into lithium salt products such as battery grade lithium carbonate and lithium hydroxide, which can then be used to produce lithium batteries and other products. Therefore, downstream lithium demand is mainly for new energy vehicles and energy storage batteries. In 2023, the global output value of lithium metal will exceed 40 billion US dollars, entering the ranks of important industrial metals. In recent years, China's new energy vehicles have entered an accelerated development period. Due to the rapid release of production capacity in the early stage, the growth rate of new energy vehicles in China will slow down in 2023. The annual output of new energy vehicles in the current period is 9.587 million units (according to data from the Ministry of Industry and Information Technology), a year-on-year increase of 35.8%. The rapid development of photovoltaic and wind power generation has also driven the development process of the energy storage industry, thereby driving the rapid growth of demand for lithium batteries. According to the GGII Energy Storage Research Institute, global shipments of lithium energy storage batteries will reach 225 GWh in 2023, a year-on-year increase of 50%. However, due to technological limitations, the demand for lithium in energy storage batteries is still relatively small. In terms of lithium carbonate, according to publicly available data, China's lithium carbonate production is expected to reach approximately 460000 tons in 2023, a year-on-year increase of 31%; The lithium carbonate production of the top ten companies in the industry accounts for about 53% of the total market output. Due to the rapid deployment of new lithium salt production capacity in the market, the industry concentration has decreased year-on-year. China has now become the world's largest producer and exporter of lithium hydroxide. In 2023, China's total production of lithium hydroxide reached 283000 tons, a year-on-year increase of 15%, which is weaker than the 59% increase in 2021 and the 38% increase in 2022. The growth rate of lithium hydroxide production in China has slowed down. In 2023, the net export volume of lithium hydroxide in China was 126200 tons, with a year-on-year growth rate of about 29%; As a key preparation material for the positive electrode of high nickel ternary lithium batteries, lithium hydroxide in China is mostly exported to the Japanese and Korean markets. In terms of price, in 2022, due to the explosive growth in demand for new energy vehicles, gradual implementation of downstream production capacity, tight supply of upstream lithium resources, and multiple auctions of PLS (Pilbara Minerals Limited) lithium concentrate, the price of battery grade lithium carbonate quickly rose to a historical high of 570000 yuan/ton. At the beginning of 2023, with the continuous expansion of lithium carbonate factories, the growth rate of downstream new energy vehicles slowed down, and the supply-demand imbalance led to a rapid decline in the price of battery grade lithium carbonate in China; After entering the second quarter, some factories reduced production or even stopped production due to cost inversion, resulting in a decline in overall operating rates and a temporary supply shortage in the market. The price of battery grade lithium carbonate stopped falling and rebounded to 270500 yuan/ton; Subsequently, as overseas lithium mining resources were gradually transported back to China, the operating rate of the lithium industry rapidly increased, and the overall supply chain products were in a state of oversupply. The price of Chinese battery grade lithium carbonate continued to decline. In the first quarter of 2024, the price of battery grade lithium carbonate in China tends to stabilize. Looking ahead to 2024, with the gradual release of lithium mining capacity, the lithium industry may continue to show a state of oversupply, and the industry will enter a "reshuffle" stage. Affected by price drops, some supply will fall into losses; In this round of capacity clearance, the ability of enterprises in the industry to control project costs and supply chain management will be particularly critical; After the supply is cleared, the price of lithium carbonate is expected to rebound, but the expected increase in price is still relatively limited. China Lithium High Tech Co., Ltd

3、 Industry attention: 1. China's mineral endowment is insufficient, making it more difficult for enterprises to obtain resources. Mineral resources are an important material foundation for economic and social development, and play a crucial role in the global energy transition. The mismatch between global resource endowment and resource demand results in abundant reserves of iron, manganese, chromium, aluminum, phosphorus, potassium salts, and lithium resources, while the guarantee level of tin, lead, zinc, nickel, cobalt, copper and other resources is relatively low. The proportion of global reserves of the 13 types of minerals mentioned above in China varies greatly, among which the resource reserves of tin, lead, zinc, and manganese account for more than 10% of the global reserves, making them advantageous minerals; The reserves of the other 9 mineral resources have a relatively low global proportion and are considered scarce minerals. For non-ferrous metal mining and beneficiation enterprises, their core competitiveness lies in mineral reserves and ore grade. Due to limited global mineral resources, companies need to continuously expand their resource reserves through independent geological surveys and resource mergers and acquisitions in order to achieve sustainable development. On the one hand, the reserve of mining resources will occupy a large amount of funds, and the global large and super large high-quality assets will decrease, making it difficult to obtain high-grade and easily exploitable mines at reasonable prices; On the other hand, there is uncertainty in the political and social structures of some countries or regions where mining resources are located, and global geopolitical tensions have intensified. The high energy consumption of mining production has become a key factor restricting the development of non-ferrous metal mining and beneficiation enterprises. The supply security of strategic key minerals has gradually become a focus of attention in the game between major powers. China has the world's largest demand market for mineral products, but overall basic metal resources are scarce. The competition for mergers and acquisitions in the field of high-quality key minerals is intensifying, which puts higher dimensional requirements on the future development of Chinese mining and beneficiation enterprises. 2. With high global mining costs, the non-ferrous metal industry has higher requirements for corporate ESG. As one of the important sources of carbon emissions, the "dual carbon" goal will urge enterprises to upgrade and innovate their technology and equipment, enhance the comprehensive utilization of industrial resources and the value of renewable resources. Some high energy consuming and high emission enterprises may face more policy restrictions on their operation, production, and capacity expansion. Transformation and upgrading will also increase the energy consumption and decarbonization costs of non-ferrous metal enterprises. In recent years, global mining companies have faced high costs due to factors such as rising energy and bulk prices, an increase in the proportion of low-grade mines, a shortage of skilled workers, inflationary pressures, rising mining taxes, and exchange rate fluctuations. In addition, overseas projects of non-ferrous metal enterprises pose ESG related risks such as community/social relations, climate change, and production safety. 3. There are many influencing factors on the price of non-ferrous metals, and industry fluctuations cannot avoid the fluctuation of product prices in the non-ferrous metal industry with macroeconomic development changes. Metal prices are affected by multiple repeated and complex factors such as global economic situation, international supply and demand, monetary/financial policies, low-carbon transformation and development, and downstream industry demand. There is a significant correlation between the operating performance of non-ferrous metal enterprises and product price fluctuations. If there is a significant fluctuation in product prices, the operation of non-ferrous metal enterprises may be under obvious pressure. Enterprises need to focus on enhancing their reserves of key mineral resources and use financial derivatives reasonably, prudently, and timely. In addition, non-ferrous metal enterprises in the industry mostly engage in some trade businesses. Scientific trade models, reasonable capital turnover, and commodity hedging management may help enterprises reduce operational risks to a certain extent. 4. There is continuous operating pressure on smelting enterprises. Most of China's bulk non-ferrous metal minerals have low self-sufficiency rates and lack pricing power over mineral resources. Domestic enterprises in China mainly focus on smelting and processing. The non-ferrous metal smelting business is located at the middle end of the industry chain, and the profit of smelting products mainly comes from the difference between market processing fees and actual processing fees of enterprises. If the processing fee is at a relatively low level, the profit pressure on smelting enterprises will be greater. In addition, the non-ferrous metal industry is characterized by heavy and light materials, with raw materials accounting for a high proportion of the company's main business costs. If the prices of major non-ferrous metals continue to rise, it will increase the difficulty of financial operation in the raw material procurement process for smelting enterprises. Some enterprises with low self-sufficiency rates, insufficient technological levels, and poor cost control capabilities will face significant operational pressure. Since 2023, China's domestic smelting capacity has been expanding, and the intensification of raw material competition has seriously affected the level of processing fees. In addition, the overall price of sulfuric acid, a by-product of smelting, has decreased due to oversupply. It is expected that the overcapacity trend will become more severe in 2024, and continuous attention should be paid to the profitability and operational status of smelting enterprises. China Lithium High Tech Co., Ltd