Lithium: cost is king

Electric vehicles redefine the needs of the lithium industry.  In 2018, the global demand for lithium industry was 270,000 tons, and lithium for electric vehicles accounted for 37%. In the past 20 years, the average compound growth rate of lithium industry Benefiting from the rapid development of the electric vehicle industry and the demand for the lithium industry, the compound growth rate of the lithium industry will remain at 18-20% in the next five years. We estimate that the market size of the lithium industry is expected to exceed 500,000 tons of LCE in 2022, and it is expected to exceed 1 million tons of LCE in 2027.

2020 lithium industry supply pattern:

1. 2020 Global Lithium The demand is 370,000 tons
2. The South American Salt Lake at the left end of the cost curve supplies 140,000 tons (ALB+ SQM+LIVENT+ORO)
3. Domestic Salt Lake Supply 40,000 tons
4. The total output of lithium concentrate in Western Australia is 290,000 tons (Talison 130,000 tons + other mines 160,000 tons

Summary: strong>The total supply of the three blocks is 470,000 tons; the domestic and foreign salt lakes + Talison on the left side of the cost curve account for 310,000 tons of supply, accounting for 84% of the market demand of 370,000 tons; the remaining lithium mines are significantly surplus, and the price of lithium concentrate is still Lithium concentrate will tie the corresponding domestic smelting enterprises to the warship, and according to our judgment on the lithium concentrate industry, the final cost of lithium concentrate is low, the company's cash flow is strong, the background of major shareholders is strong, and the lithium concentrate and domestic Mines with good smelters are more likely to win. Due to the slow sales of the lithium concentrate industry in 2019, the passive increase in inventory, and the tight cash flow of some mining companies, we judge that the second-phase expansion projects of some companies will be postponed (PLS II period, AJM Phase II, Talison Phase II).

2019 -2021 supply will be released centrally, supply and demand will be under pressure. 2019-2021 is a period of concentrated release of lithium resource supply, lithium supply is 45/57/690,000 tons LCE, +39%/27%/22% year-on-year, and 2019-2021 demand is 32/38/ 450,000 tons of LCE, the overall supply and demand are under pressure.

Lithium price judgment:

1. From the resource side, Lithium prices are still dropping. Since 2019-2020 is a period of rapid release of lithium salt supply (with a growth rate of 31%/28%), supply and demand are under pressure. At present, the profit margins of the overall lithium industry (lithium mine, lithium smelting) are gradually squeezed. However, the lithium industry as a whole passively increases inventory, and lithium prices need to fall for the last time. From the perspective of the cost curve of the lithium industry, lithium prices continue to fall to 50,000-55,000/ton. The speed and extent of the decline depends on the rhythm of downstream demand for lithium salts. And supply new supply release rate. The price of lithium concentrate will be the most important indicator of marginal cost.
2. ②When will lithium prices rebound? After the lithium price bottomed out, the high-cost supply has been cleared, but the rebound still needs to exceed expectations in demand - the outbreak of electric vehicles, we judge that this time point will be after the second half of 2020

Maintain the overweight rating of the lithium industry. We believe that the rapid development of new energy vehicles will drive the rapid growth of the lithium industry. We predict that the lithium industry will maintain a growth rate of 18%-20% in the next five years, and The growth is accelerating year by year. In terms of supply, the concentration of the lithium industry is gradually rising, which is more conducive to the long-term healthy development of the lithium industry. The price of lithium and lithium concentrate is gradually bottoming out, and the long-term intrinsic value of domestic lithium salt leaders is gradually highlighted, benefiting: Ganfeng Lithium Industry (HK), overweight: Ganfeng Lithium, Tianqi Lithium.

                             

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Risk warning: The growth rate of new energy vehicles is lower than expected.