Analysis of the current lithium industry core questions: industry overcapacity status quo?

Analysis of the current lithium industry core questions: industry overcapacity status quo?

1) Comparison of the increase and decrease of each link in the lithium industry chain over the years

The midstream segment of the lithium industry chain presents higher elasticity. 2018~2022, the CAGR of capacity expansion of each segment of the lithium battery industry chain are: upstream lithium resources +33.6%, midstream materials +57.1%, power batteries +66.8%, and energy storage batteries +119.3%, and downstream new energy vehicles +53.5% and energy storage installed capacity +81.0%. Given the installed capacity of energy storage compared to the power battery there are orders of magnitude differences, the energy storage surplus absolute value is small, so in the past five years, the production expansion rate ranking: midstream battery > midstream materials > downstream car + storage > upstream resources, midstream production expansion rhythm is more aggressive. With the second half of 2023 terminal demand being less than expected, midstream materials + battery plate from the growth leader to become the focus of excess capacity contradictions, lithium industry chain capacity growth trend has changed to the ‘middle of the low two high’ pattern, 2023 upstream lithium resources growth rate of +28.8%, midstream materials and battery growth rate of +26.6%/+23.5% respectively. 26.6% / +23.7%, downstream of the new energy vehicles +35.8% and energy storage +189.0%, 2023 lithium industry chain production growth rate of each link in the order: downstream car + storage > upstream resources > midstream materials > midstream battery.

2) The supply-side capacity of lithium salts in recent years

The production of lithium carbonate/lithium hydroxide at the upstream end has diverged. According to iFind data, in December 2023, lithium hydroxide/lithium carbonate single-month production of 2.0 million tons / 36,000 tons, +19.7% / +36.8% year-on-year, 2023 annual lithium hydroxide/lithium carbonate production of 220,000 tons / 385,000 tons, +19.7% / +34.6% year-on-year, the growth rate of lithium carbonate supply is significantly better than lithium hydroxide.

The start rate data of the two show a big difference. The lithium content of lithium carbonate is stable and suitable for lithium iron phosphate and ordinary ternary batteries, while lithium hydroxide has a lower reaction temperature, provides better oxidation resistance during processing, has high corrosivity and large fluctuations in lithium content, and is therefore mainly used in high-nickel ternary routes. The main difference in start-up rate stems from the difference in demand for downstream battery cells. By the lithium iron route in power, battery accounted for the expansion of superimposed on the rapid release of energy storage batteries, 2023 since the beginning of the lithium carbonate work rate has grown steadily, the supply side is in the state of discharge, in December lithium carbonate work rate of 78%, year-on-year +20pcts, but compared with 80% in November a slight retracement, and high-nickel ternary represented by the ternary system in the power battery accounted for the continued narrowing of the lithium hydroxide work rate compared with 2022 significantly lower, the supply side of the incremental narrowing, inventory more obvious, lithium hydroxide start rate of 41% in December, +0pcts year-on-year, compared with 39% start rate in November, a slight improvement, but the overall trend is still in a downward spiral.

3) In recent years, the lithium battery industry chain midstream materials supply side situation

In recent years, due to the continuous downturn in the terminal market as a whole, the promotion of new production capacity in various market segment of middle-stream materials of lithium battery has slowed down significantly. According to iFind data, the average growth rate of cash payment in all aspects of construction of fixed assets of positive/negative/diaphragm/electrolyte listed companies in Q1 ~ 3 in 2023 was -4.8% /-7.9% /+31.6% /+15.2%, which is significantly lower than that in the previous two years. According to the public statistics of Financial Eleventh, IOT has announced that the capacity planning far exceeds the global demand in 2025. Therefore, the pace of the overall new capacity of the lithium material plate will continue to slow down, and some planned capacity will be postponed or cancelled, of which the electrolyte/diaphragm link is relatively good.

The anode trend are consistent, and the differentiation steps are consistent. According to the consultation and iFind, the new capacity of anode materials has slowed down since 2023. By the end of December, the global capacity of ternary materials/Ferrous lithium phosphate was 1.995 million tons/year and 3.492 million tons/year respectively, of which the ternary materials/high nickel ternary materials had not been put into production for 4 months/six months respectively. In terms of operating rate, in December, the operating rate of ternary/lithium-iron cathode was 58% /74% year-on-year, -25 pct/+0 pct. The ternary operating rate has been in a low state for six months in a row, and the lithium-iron anode has decreased compared with the same period of last year, but it is still in a high level. In terms of output, the output of Sanyuan/LiFeO in December was 47,000 tons/129,000 tons, which was -14.6% /+28.3% year-on-year. Sanyuan maintained the trend of low operating rate-production reduction, and the growth rate of LiFeO supply was narrowed, due to the rhythm differentiation of downstream demand, but the trend of weak supply was more consistent.

The output of anode may continue to shrink. According to iFind, in December 2023, the output of negative electrodes in China was 104,000 tons, which was -17.0% year-on-year. Considering the high inventory level in the anode industry at present, the shrinking supply side may continue.

Diaphragm and electrolyte are close to the end of de-stocking, and are expected to take the lead in response if demand is repaired. According to iFind data, in December 2023, the output of diaphragm/electrolyte in China was 143,000 mt/80,000 mt, which was +23.7% /+0.4% year-on-year. The growth rate continues to decline, mainly due to 2023 Q 4 demand being less than expected. At the same time, at present, the inventory of the two links is close to the normal level, and the pressure of going to the warehouse is low, and both of them may rebound first with the recovery of demand. 

4) Supply-side situation of the lithium battery market in recent years

The core inventory rate of dynamic storage battery is decreasing continuously. According to the statistics of Silla Lithium Industry, in 2023, the global production and sales volume of energy storage cores were 220.1 GWh/210.0 GWh, respectively, which was +57.3% /+70.0% year-on-year. The inventory rate of energy storage core factory further decreased from 11.7% in 2022 to 4.6%. The main reasons are as follows: First, in order to alleviate the risk of large fluctuations in lithium carbonate prices, the core factories actively chose low inventory strategies; The second is that the overall demand of the energy storage market in 2023 is not as good as expected, and the financial pressure of core manufacturers is greater than in previous years, so they tend to adopt a conservative attitude towards the core supply. In 2023, the overall demand of the energy storage market is less than expected, and the financial pressure of core manufacturers is greater than in previous years, so the core supply tends to adopt a conservative strategy.

The power battery inventory rate also ushered in a significant decline. According to the China Automotive Power Battery Industry Innovation Alliance data, China's power battery production in 2023 was 675.5 GWh, +23.7% year-on-year, the inventory rate of 33.6% in 2022 fell to 23.7%, the main reason for the similarity with the energy storage battery, and the 2023 Q 4 trolley rushing phenomenon is weaker further weakening the battery factory scheduling efforts. The main reason is similar to that of battery. The weak phenomenon of luggage case grabbing orders in 2023 Q 4 further weakened the production scheduling strength of battery factories. At the same time, the export demand difference affects the inventory level of ternary/lithium iron phosphate batteries. In the scope and overseas mainstream market, high latitude is caused by the attenuation factor in winter, and overseas power batteries is still mainly based on the ternary routes. In 2022/2023, the proportion of domestic vehicle installed capacity to the total output was basically the same (52.0% /51.5%), and the exports accounted for 35.4%, which pushed the core inventory rate of ternary batteries down to 13.1% for the whole year; LiFePO 4 batteries is still mainly installed in China, accounting for only about 10% of the total output. It accounts for only 10% of the total output, implying high growth space. In 2023, the inventory rate will be 30.4%.