Lithium prices fall below 80000 yuan/ton, when will the super 'cyclical bear' end

Lithium prices fall below 80000 yuan/ton, when will the super 'cyclical bear' end

The lithium situation seems to be becoming more severe.

On August 2nd, LC (Lithium Carbonate) 2408 closed at 79900 yuan/ton, a decrease of 26.97% since the beginning of this year, continuously breaking new lows since its listing; On the same day, Shanghai Steel Union released data showing that the price of battery grade lithium carbonate fell by 1000 yuan today compared to the last time, with an average price of 79500 yuan/ton, which is almost the lowest price in more than three years (February 24, 2021).

According to statistics from the CLPC Industry Research Institute (TTIR), the profitability of the seven lithium listed companies that have released their performance forecasts for the first half of 2024 has significantly declined, with a total loss (net profit attributable to the parent company) of 3.985 billion yuan to 3.15 billion yuan in the first half of the year, a year-on-year decrease of 121.86% -12.42%. Among them, Tianqi Lithium, one of the two giants in lithium mining, suffered a loss of 5.53-4.88 billion yuan, while Ganfeng Lithium suffered a loss of 760-12.5 billion yuan.

Against the backdrop of the strong rise of new energy, as a national strategic resource, every round of drastic fluctuations in lithium prices almost triggers a storm of market attention and controversy.

Looking back at the evolution of lithium prices over the past decade, it has gone through multiple cycles of bull and bear, each of which has had a profound impact on the industrial landscape. The reason for this is almost always caused by drastic changes in the supply and demand relationship, that is, once the market supply and demand relationship changes, prices will definitely react quickly in reality, which is the power of cycles.

As is well known, the supply and demand structure of the lithium industry has undergone fundamental changes since 2023. Specifically, while funds have entered the upstream to accelerate the release of production capacity, downstream demand has not grown synchronously, resulting in the entire lithium battery industry chain being in a state of overcapacity. As a result, the industry's internal competition has intensified, and the new energy industry is facing a brutal reshuffle. Therefore, the almost unanimous expectation has led to the market having no resistance to the decline in lithium prices.

The short-term market fluctuations of lithium prices are almost unpredictable, but the long-term trend still depends on changes in supply and demand. This article aims to explore the issue of "further downward space for lithium prices and the starting point of the next bull market" with readers through the organization and analysis of future supply and demand data. It is intended to stimulate further discussion and is for reference only. Readers are also welcome to supplement, correct, and even criticize.

According to CLPC data, the global lithium resource development in 2023 will be approximately 1.05 million tons of LCE (lithium carbonate equivalent, same below), an increase of 40% year-on-year. Among them, Australia produces 380000 tons of LCE (accounting for 36.2%), South American salt lakes produce 260000 tons of LCE (accounting for 24.8%), China produces 230000 tons of LCE (accounting for 21.9%), and Africa produces 50000 tons of LCE (accounting for 4.7%).

Based on the performance in the first quarter, some high cost Australian mines have announced production cuts. According to Antaike's statistics, projects such as Finnis, Greenbushes, Cattlin, and Wodgina have seen their production decline as scheduled. Overall, Australia's Q1 production decreased by about 12.3% month on month. The main constraint on the production reduction of Australian mines in the first half of the year was a small portion of high cost production capacity. Cost reduction and efficiency improvement will become the main direction of Australian mines, and it has not had much impact on the current situation of oversupply.

On the contrary, the production progress of African mines is relatively optimistic, with most Chinese funded mines smoothly advancing their projects in Zimbabwe and Nigeria in the first half of the year, CHINA LITHIUM PRODUCTS TECHNOLOGY CO., LTD, Huayou Cobalt, Zhongkuang Resources, Shengxin Lithium Energy and other self owned overseas concentrate resources are gradually being transported back to domestic factories, with a monthly import volume of about 100000 tons.

According to data from CHINA LITHIUM PRODUCES TECHNOLOGY CO., LTD, the production of lithium concentrate in Africa is expected to exceed 1 million tons in 2024, equivalent to approximately 160000 tons of lithium carbonate equivalent. By 2025, the production of lithium concentrate may reach over 2 million tons, equivalent to nearly 300000 tons of lithium carbonate equivalent. Africa has surpassed Brazil and become the second largest source of lithium pyroxene imports for China after Australia.

In addition, according to statistics from CHINA LITHIUM PRODUCES TECHNOLOGY CO., LTD, it is expected that the global new lithium resource production capacity will be 1.0419 million tons of LCE from 2024 to 2026, mainly consisting of salt lakes in China and Argentina. Low cost salt lake resources such as Argentina and China will gradually be put into operation in 24-26.

In fact, the production capacity of South American salt lakes is accelerating in the next 24 years, and SQM's production capacity is expected to increase to 240000 tons within the year. The annual production guidance is 210000-220000 tons, and it is expected to still contribute to the largest increase in South American single projects; The Cauchari Oraros salt lake of Ganfeng Lithium Industry has already been put into operation, and the production capacity of lithium carbonate is expected to increase to 40000 tons by the middle of the year, with an annual production target of 20000 to 25000 tons.

At present, the largest production still comes from ALB and SQM in the Atacama Salt Lake in Chile, but the increase is mostly from Argentina, including companies such as Ganfeng Lithium, Zijin Mining, Arcadiam, and Eramet, which have layout in Argentina and will concentrate on production in 2024, bringing significant growth. Four new lithium mines in Argentina will be put into operation in the second half of 2024, which will significantly increase Argentina's annual lithium production capacity by 79%, reaching 202000 tons.

According to statistics from CHINA LITHIUM PRODUCES TECHNOLOGY CO., LTD, Chile and Argentina will produce 233000 and 45000 tons of LCE respectively in 2023, and are expected to produce 250000 and 104000 tons of LCE respectively in 2024, with a year-on-year increase of 7% and 131%.

Looking at the domestic market, lithium extraction projects from salt lakes in China are also constantly being promoted. The Zabuye Phase II lithium carbonate project under the company has started trial production, adding 9600 tons/year of battery grade lithium carbonate and 2400 tons/year of industrial grade lithium carbonate. In addition, the Cha'erhan Salt Lake project with an annual production capacity of 20000 tons of LCE by Lanke Lithium will be put into operation in the second half of the year, and it is expected that the company's lithium carbonate production will be about 40000 tons by 2024. According to Antaike's statistics, it is expected that the domestic salt lake production will increase to 135000 tons of LCE in 2024, a year-on-year increase of 18.4%.

Based on the above analysis, in this round of investment cycle for lithium mines, the capital expenditures stimulated by price increases will gradually be realized. The author believes that 2024-2025 will be a period of concentrated release of global lithium mine (including brine) production capacity, with new projects in South America, Africa, and China gradually put into operation and ramping up, which will still contribute significantly to incremental growth. Especially since the supply increment in 2023 is weaker than expected by the end of 2022, this portion of production capacity will also be released later in 2024-2025.

Under neutral expectations, CHINA LITHIUM PRODUCES TECHNOLOGY CO., LTD expects a global lithium resource increase of 350000 tons of LCE in 2024, which is still higher than the consumption increase of 14 tons of LCE that year. The excess amount in 2024 is about 250000 tons of LCE. (Appendix at the end of the article: Global distribution map of major lithium resources)

At present, power batteries (including new energy vehicles and two wheelers) and energy storage batteries account for about 70% of lithium resource consumption, which are also the two areas with the largest demand for lithium resources in the future. Grasping the changes in demand in these two areas can almost grasp the direction and trend of future lithium prices.

In terms of the current overall situation, the driving force of power batteries on lithium demand still occupies an absolute position. In the major global markets, new energy vehicles in the three major regions of China, Europe, and America account for the vast majority of the market. Domestic sales in China account for more than 60% of global sales, followed by Europe with nearly 20%, and the US market with about 10%. But it is almost a consensus in the industry that the growth rate of new energy vehicles will slow down in the future.

According to SMM data, from January to June 2024, both the European and American markets fell short of expectations, with sales of new energy vehicles in the European market reaching 1.182 million units, a year-on-year decrease of 14%; The sales volume of new energy vehicles in the US market was 787000 units, with a year-on-year growth rate of only 14%. Further analysis shows that since 2023, many European countries have tightened their subsidy policies for new energy vehicles, coupled with the impact of rising raw material prices, which is one of the core reasons for the significant slowdown in sales growth of their new energy vehicles; However, domestic car companies in the United States continue to reduce their spending on electric vehicles, leading to severe delays in new car models and sluggish growth in the US market.

In the domestic market, the production and sales of new energy vehicles reached 4.929 million and 4.944 million respectively in the first half of 2024, an increase of 30.1% and 32% year-on-year, with a market share of 35.2%. With the continuous increase of penetration rate, it is reasonable and inevitable to slow down in the future.

China LITHIUM PRODUCES TECHNOLOGY CO., LTD Economic Research Institute believes that the penetration rate of new energy vehicles in China has reached 25.6% by 2022. If the growth rate is maintained at 100% every year, it will basically achieve 100% penetration by 2024; If the annual growth rate drops to 50%, it will also achieve 100% penetration by 2026. A more reasonable and realistic development trend is a continuous decline in growth rate, which is not contradictory to accelerated penetration.

Especially, due to geopolitical and trade protection reasons, the export of new energy vehicles in China is severely restricted. According to statistics from the China Association of Automobile Manufacturers (CAAM), from January to June 2024, the domestic export of new energy vehicles was 605000 units, a year-on-year increase of 13.2%, while the growth rate in the same period last year was 154.97%.

With Europe and the United States imposing numerous obstacles on Chinese automobile and battery exports through tariffs or cooperation bans, hindering Chinese companies from competing overseas, it is expected that there will still be some pressure on exports in the future.

With the increasing global attention on carbon emissions and the continuous strengthening of carbon neutrality strategies, the traditional fossil fuel energy system is rapidly transitioning towards a structure centered on clean and low-carbon renewable energy. In this context, the energy storage field has shown unprecedented growth momentum. Energy storage has become the fastest-growing sector in 2023 and the second largest downstream demand industry for lithium, accounting for approximately 15%.

Based on data from institutions such as EVTank, Ive Economic Research Institute, ICC Xinluo Information, etc., the global shipment of energy storage batteries reached 130GWh in the first half of 2024, a year-on-year increase of 35%, with a growth rate about 38.4 percentage points lower than the same period in 2023.

The decline in energy storage batteries in the first half of 2024 is mainly related to the slowdown in overseas market growth. The European market is still digesting inventory, and the installation progress in the US market has been delayed. The contribution of other emerging markets to demand is limited, and overall overseas energy storage demand remains sluggish. In the second quarter, after experiencing a phase of destocking in the early stages, demand for household energy storage in Europe has rebounded. However, some regions in Europe still face challenges such as the gradual cancellation of subsidy policies and low electricity prices. Therefore, the demand for household energy storage market remains relatively stable in the absence of obvious favorable policies; As the world's second-largest market, the United States' electricity market is already quite mature, so energy storage installation mainly relies on market driven factors. Last year, the North American energy storage market was affected by factors such as federal government interest rate hikes and extended delivery cycles for certain energy storage components (such as transformers), resulting in a slowdown in growth rate.

According to the "White Paper on the Development of China's Lithium ion Battery Industry (2024)" jointly released by research institution EVTank and Evie Economic Research Institute, the overall global shipment of lithium-ion batteries in 2023 is 1202.6 GWh, a year-on-year increase of 25.6%, and the growth rate has shown a significant decline compared to 2022. From the perspective of shipment structure, in 2023, the global shipment volume of automotive power batteries (EV LIB) was 865.2 GWh, a year-on-year increase of 26.5%; The shipment of energy storage batteries (ESS LIB) reached 224.2 GWh, a year-on-year increase of 40.7%. Based on historical data, assuming a growth rate of 40% for fake energy storage batteries and 25% for power batteries in the next two years, the shipment volume of power and energy storage batteries by 2025 is as follows:

As shown in the table above, in 2024, energy storage shipments will account for approximately 29% of power batteries. The rapid growth of energy storage has a certain driving effect on lithium demand, but it still cannot quickly drive a significant increase in lithium demand in the short term. From a long-term perspective, the rapid growth of energy storage in the future will be an important engine driving the increase in lithium demand, which we may see after 2025.

In summary, it is highly probable that the demand growth trend of the lithium battery industry will slow down in 2024.

At present, against the backdrop of a consensus expectation of overcapacity in the entire market, we analyze that clearing some high cost mining capacity is a necessary path for prices to bottom out. However, at present, large-scale production cuts have not yet occurred, and the road to bottoming out lithium prices is still long.

According to data from CHINA LITHIUM PRODUCES TECHNOLOGY CO., LTD, the current inventory of lithium carbonate in the entire industry exceeds 120000 tons, with warehouse receipts exceeding 35000 tons. The entire industry chain is accumulating inventory, especially downstream material factories whose inventory levels are higher than the same period in previous years.

Looking at the trends and changes in industrial development, the lower cost boundary of lithium carbonate has significant reference value for mid-term price fluctuations and even for reshaping the industrial landscape.

Specifically, according to the lithium cost price curve, the cash cost of extracting lithium from salt lakes is the most competitive, with its cost at the far left of the curve. The cost of extracting lithium from most salt lakes ranges from 30000 to 50000 yuan/ton; Secondly, the cost of high-quality spodumene mining is about 40000 to 60000 yuan/ton, followed closely by high-quality lithium mica ore with a cost of approximately 60000 to 80000 yuan/ton; The mining cost of resources in Africa is relatively high, mainly due to the high cost of energy and transportation, estimated to be between 70000 and 110000 yuan/ton. Although the current cost range is relatively high, with the further improvement of supporting facilities and transportation infrastructure, these costs may still be further reduced; Relatively speaking, low-quality lithium mica projects face the highest cost pressure, with cash costs exceeding 120000 yuan/ton.

Based on the current reasonable supply cost distribution map, Xingye Futures believes that the industry's cost center is expected to fall within 80000 to 90000 yuan, and has made four hypothetical scenarios based on this:

1) The price is at 60000 yuan/ton for 24 years, with an effective supply of about 530000 tons of LCE, which will present an extreme imbalance between supply and demand;

2) The price is at 80000 yuan/ton for 24 years, with an effective supply of about 980000 tons of LCE, and it is only possible to reach this position during the capacity clearing stage;

3) The price has remained at 100000 yuan/ton for 24 years, with an effective supply of approximately 1.2 million tons of LCE, and the industry has basically achieved a tight balance between supply and demand;

4) The price is at 140000 yuan/ton LCE for 24 years, and the global effective supply will exceed 1.4 million tons. Production enterprises will accelerate capacity expansion.

At present, the price of lithium carbonate has reached 80000 yuan, which is supported by the average cost of Yichun mica and African mines. After 80000 yuan is further broken down, the cost line of Australian mines will be tested. At present, according to the announcements of Australian mining companies from 23Q3-24Q1, various mining companies have achieved significant cost reduction effects by prioritizing the development of rich mines. However, there is not much room for further cost reduction. If lithium prices continue to fall, it is necessary to consider whether Australian mines can achieve cost support.

In summary, there has not been a significant contraction in upstream resources at present. Overseas Australian mines announced a reduction in production at the beginning of the year, but currently it only restricts high cost projects. August is still the peak season for salt lake production, and with cost advantages, there will be no reduction in production. Integrated production enterprises are still some distance away from the breakeven line. Currently, it appears that external mining and low-grade lithium extraction enterprises will gradually cease production due to severe cost inversion, but the impact on supply scale is limited.

So in the short term, lithium carbonate will continue to have an oversupply pattern in August, and the high inventory will exert significant pressure on the spot market, reflecting the contradiction between supply and demand surplus. The overall trend is still fluctuating and seeking a bottom.

In the medium to long term, we expect that the road to bottoming out this round will be relatively long, and it will take time for high cost projects to gradually clear. With the recovery of demand, especially if the rapid growth of the energy storage field drives the release of lithium demand in the future, and the supply-demand balance reaches a new turning point, lithium prices may stabilize and rise. We expect that the next upward cycle of lithium prices may occur after 2025.