Lithium carbonate futures escort the strengthening of China's lithium industry discourse power

With the rapid development of new energy, countries are increasingly competing for core mineral resources represented by lithium mines, and the security of China's lithium carbonate supply chain is facing new challenges. 

At the same time, under the new supply and demand situation, the pricing model of the global lithium carbonate industry chain is undergoing profound changes, 

and the pricing model of foreign mines is shortening from quarterly pricing to monthly pricing. 

Under the escort of Guangqi Exchange's lithium carbonate futures, the pricing power of China's lithium battery industry is gradually increasing.

Industry insiders believe that the gradual application of lithium carbonate futures prices in industry pricing not only helps China's lithium industry manage the risks brought by lithium price fluctuations, 

but also further enhances the pricing influence of China's lithium salt industry, helping to ensure the stability and safety of China's important strategic resource - lithium resource supply.

Domestic lithium companies face new challenges in buying mines

In recent years, China has become the world's largest producer and consumer of lithium carbonate, thanks to its most complete lithium battery industry chain and the advantage in the size of the new energy vehicle market. 

Data shows that in 2023, China's production and consumption of lithium carbonate will account for 68% and 77% of the global total, respectively.

However, the global distribution of lithium resources is uneven, with the South American "Lithium Triangle" (Bolivia, Argentina, and Chile) accounting for a total of 52% of the global lithium mineral resources,

 while China's resource reserves only account for 6% of the global total. In order to obtain more high-quality lithium mineral resources, enterprises in various links of the industrial chain, including Ganfeng Lithium and Ningde Times, 

have successively laid out foreign high-quality lithium mineral resources through equity acquisitions or equity participation.

However, the path of foreign investment for domestic lithium companies has not been smooth sailing. Recently, 

Tianqi Lithium and Ganfeng Lithium have encountered setbacks abroad, and the ownership of their mineral resources in the local area has suddenly changed. On June 24th, 

Ganfeng Lithium disclosed the progress of the dispute over the Sonora lithium clay project in Mexico,

 stating that the arbitration initiated by the company has been officially registered with the International Center for the Settlement of Investment Disputes.

 It is reported that in August last year, the Mexican government announced the cancellation of 9 mineral concessions for the project. 

The experience of Ganfeng Lithium is not an isolated case. Recently, Chile's strategic adjustment of lithium resources has also affected Tianqi Lithium's foreign investment rights. 

The accelerated nationalization of lithium resources by other resource rich countries has also brought severe challenges to Chinese companies' foreign lithium resource investments.

Due to the uneven distribution of lithium resources, it has become inevitable for Chinese lithium mining enterprises to go global,"a senior person who has long been engaged in international trade of lithium mines told Futures Daily reporters. 

With the increasing importance of lithium resources for the development of new energy industries such as power batteries and energy storage,

 resource rich countries are paying more attention to the competition for these resources. 

For Chinese enterprises that still rely mainly on imports of lithium resources, buying mines abroad is undoubtedly more challenging.

China's dependence on foreign lithium resources is relatively high

China's dependence on foreign lithium resources is relatively high, but before the listing of lithium carbonate futures, the pricing power of China's lithium resources did not match the scale of industrial development.

 For a long time, there has been a lack of fair pricing benchmarks in international lithium resource trade. 

The pricing of lithium concentrates is based on the irregular public auction prices of foreign mining giants, which cannot provide accurate price signals in real time. When prices fluctuate sharply, transaction prices lag significantly.

 Chinese lithium battery companies are constrained by this in negotiating imported lithium resources and calculating resource taxes.

 Foreign mining companies often auction off a small amount of ore to obtain a transaction price higher than the spot price, which promotes the rise of spot prices, increases the import cost of lithium resources in China, 

and increases the burden on the development of China's lithium battery industry.

The most typical case is that during the upward trend of lithium prices in 2022,

 Australian miner Pibara Mining held multiple lithium concentrate auctions, significantly contributing to the rise in lithium prices.

 In August 2023, Pibara held its eighth auction and received 67 bids within 30 minutes, with the final transaction price increasing more than four times compared to the first auction in July 2021. 

According to industry insiders' calculations, when the domestic lithium price is above 500000 yuan/ton, 

each ton of lithium carbonate equivalent ore can bring more than 400000 yuan/ton of revenue to Australian mining companies, while its cost does not exceed 80000 yuan/ton.

In the market pattern of phased supply-demand mismatch, 

foreign mineral giants have seized most of the profits from China's raw material processing, battery manufacturing, and vehicle production through high price auctions, speculation, 

and other means, attempting to turn Chinese enterprises into upstream OEM factories and posing challenges to China's new energy battery enterprises in enhancing their global core competitiveness.

According to the report "Research on High Quality Development of Lithium Resource Industry Chain and Supply Chain" by Minmetals Capital, in the second quarter of 2022, 

the market price of lithium carbonate in China continued to soar, with an average price of 63171 US dollars/ton, an increase of 13.8%. 

Among them, the production cost of lithium carbonate per ton increased to 9993 US dollars, an increase of 12.6%; The profit increased to $53178, a 14% increase.

 However, in terms of profit composition, the production profit of foreign mining enterprises has surged from $12886/ton to $27784/ton, accounting for 55.2% of the total profit, up from 27.6%; 

The profit of smelting enterprises in China has dropped from 33764 US dollars/ton to 25394 US dollars/ton, accounting for 47.7% of the total profit from 72.4%.

In addition, in the past, the price of imported pyroxene ore was mainly settled based on the average lithium salt price (Q-1) of the previous quarter. 

However, from the perspective of 2023, the decline in concentrate prices is lower than that of lithium carbonate prices.

According to data from Shanghai Steel Union, the price of lithium carbonate will drop from a high of nearly 600000 yuan/ton to below 100000 yuan/ton in 2023, a decrease of over 80%; 

During the same period, spodumene concentrate fell from $5500/ton at the beginning of the year to $1600/ton at the end of the year, a decrease of about 70%.

 This pricing model has increased the loss pressure on domestic lithium companies.

Zheng Xiaoqiang, a lithium industry analyst at Shanghai Steel Union's New Energy Division, believes that in terms of transportation time, 

the transportation time of lithium mines from South America and Africa to China is generally 1-2 months.

 Due to the delay in price transmission, lithium salt companies that need to purchase lithium mines from outside face the dilemma of "buying mines at high prices and selling goods at low prices" under the Q-1 pricing model,

 resulting in losses.

The international influence of futures prices is gradually emerging

After the listing of lithium carbonate futures, with open and transparent price guidance, the pricing power of China's lithium battery industry is gradually increasing. 

Under the new supply and demand situation, the price of lithium carbonate has dropped significantly by 80% in the past year, and high priced lithium mines represented by Australia have loosened. 

It is reported that since the fourth quarter of 2023, there has been a shift in the pricing model of the mining sector, 

from a long-term pricing model based on historical prices to a reverse pricing model based on lithium carbonate futures prices. In the past,

 lithium mines were generally priced based on the average price of the previous season (Q-1), but now most of them are priced based on futures prices (M+N).

The pricing model of foreign mines has been shortened from quarterly pricing to monthly pricing, which is more favorable for downstream in the downward cycle of lithium carbonate. 

Domestic lithium salt manufacturers have settled their prices closer to the port price and the domestic spot market price for imported lithium ore. 

Zheng Xiaoqiang analyzed that this change will help the raw material prices in foreign markets to be closer to the spot market price. 

At the same time, due to changes in the pricing model of mines, the production cost of lithium carbonate using mineral materials as raw materials in China will significantly decrease, 

thereby reducing the market risks faced by downstream.

More importantly, with the rapid development of China's new energy industry and the increasing global influence of the Chinese market, the pricing power of the domestic lithium battery industry is gradually strengthening. 

Previously, the pricing power of lithium concentrate was mainly controlled by upstream suppliers.

 In the situation of oversupply of lithium salt enterprises in China, enterprises that purchase minerals to produce lithium salts have chosen to reduce their external mining volume due to price influence,

 which in turn affects the sales of lithium concentrate by Australian mining enterprises. 

Zheng Xiaoqiang stated that the current decline in lithium prices and the change in pricing models of foreign mines have led to a redistribution of profits in the industry

, which is more conducive to downstream lithium battery enterprises represented by CATL in China, helping them carry out high-tech research and development and foreign market development.

In the eyes of many industry insiders, the pricing power of China's lithium industry is gradually increasing, thanks to the role played by the lithium carbonate futures market. The most obvious comparison is that since 2024, 

foreign lithium suppliers such as Albemarle have still organized auctions and tenders, but the results of each tender basically follow the futures market. Industry insiders believe that from this perspective,

 Chinese lithium carbonate futures have already occupied an important position in the global lithium carbonate pricing system.

In addition, under the escort of lithium carbonate futures, domestic lithium salt companies are no longer afraid of the decline in lithium carbonate prices. 

"In the cycle of lithium price decline, if the average price pricing mode last month reduced the production costs of outsourced lithium mining enterprises, 

after the listing of lithium carbonate futures in Guangzhou Futures Exchange, industrial enterprises can avoid the risk of price decline by hedging and other means,

 which undoubtedly enhanced the confidence of domestic lithium enterprises in the international trade.

" Gao Zhihua, a researcher of Kaifeng Investment, said that, combined with the hedging function of Guangzhou Futures Exchange's lithium carbonate futures,

 lithium salt production enterprises can maximize the risk of lithium price decline in the production process, and further enhance China's pricing influence in the global lithium salt industry.

 This not only helps to enhance the stability of China's lithium carbonate supply chain, but also provides strong support for ensuring national energy security.

Unlike the long-term agreement pricing in international trade, most domestic enterprises are accustomed to formulating procurement strategies based on changes in lithium prices and using spot buying.

 "Moko, founder and president of True Lithium Research, believes that the current domestic lithium carbonate market is jointly priced based on the price changes of lithium carbonate futures on the Guangzhou Futures Exchange, 

while referring to last month's quotes. From this perspective, the price influence of China's lithium carbonate futures in the international market will gradually increase. 

By participating in the futures market, domestic enterprises can better grasp market price dynamics and enhance their competitiveness in the international market.

In fact, the international market influence of Guangqi Exchange's lithium carbonate futures has begun to emerge. 

According to feedback from overseas industrial enterprises,

 the lithium carbonate futures price on Guangqi Exchange is currently the most authoritative price reflecting the global supply and demand relationship in the lithium battery industry. 

At present, the lithium products of Zimbabwe Mineral Products Sales Company (MMCZ) are priced based on the 10 day average price of the fourth month contract of Guangshi Exchange's lithium carbonate futures.

This not only further proves the important position and influence of China's lithium carbonate futures in the global market,

 but also provides strong support and broad space for the further development of China's lithium carbonate futures market.

 Industry insiders say that with the continuous development of the global new energy industry and the continuous improvement of China's international market position,

 China's lithium carbonate futures market is expected to play a more important role.

 Domestic enterprises should also actively participate in the futures market, enhance their risk management capabilities and international competitiveness, 

and jointly promote the international pricing influence of China's lithium carbonate futures.