Analysis of Lithium Resource Supply-Demand Contradiction: Perspectives on Battery Capacity Growth, Overseas Production, and Refining Plant Constructio

Analysis of Lithium Resource Supply-Demand Contradiction: Perspectives on Battery Capacity Growth, Overseas Production, and Refining Plant Construction

Abstract:

This paper analyzes the three perspectives of the lithium resource supply-demand contradiction: the growth rate of installed capacity for lithium batteries, the growth of lithium mining supply, and the construction speed of lithium refining plants. Among them, the growth rate of installed capacity for lithium batteries is the fastest and longest-lasting, and it is expected to continue to grow significantly until at least 2030, driven by the demand for new energy transformation. The construction of lithium refining plants faces higher difficulty and capacity release speed compared to the construction cycle and capacity release speed of lithium mines. Although investments in lithium exploration, mergers and acquisitions, and construction are increasing, the cyclical nature of mining discoveries limits the pace of capacity release, and it is predicted that the speed of capacity release from 2024 to 2030 will significantly decrease. Therefore, the supply-demand contradiction of lithium resources still exists in the medium and long term. The period from 2022 to 2024 may be a temporary phase of supply-demand balance due to destocking cycles and short-term capacity release caused by the reduction in commodity inventory.

The Growth Rate of Installed Capacity for Lithium Batteries

The growth rate of installed capacity for lithium batteries has been remarkable, driven by the dual momentum of the new energy vehicle and energy storage industries. The sustained growth in the lithium battery industry can be attributed to several factors.

In the realm of new energy vehicles, China witnessed impressive sales of 6.872 million units in 2022, representing a staggering year-on-year increase of 96%. This surge resulted in a remarkable penetration rate of 25.6%. Consequently, the demand for new energy vehicles led to a continuous rise in power battery shipments. In China alone, the shipment of power batteries reached an impressive 480 GWh in 2022, experiencing a substantial year-on-year growth of 118.2%.

Furthermore, the energy storage sector has also contributed significantly to the growth of the lithium battery industry. In 2022, lithium battery shipments for energy storage in China reached 130 GWh, reflecting a substantial year-on-year increase of 170.8%. The high demand downstream has consequently facilitated synchronous growth in the performance of lithium battery companies throughout 2022. The operating revenue of the lithium battery industry in 2022 was 475.433 billion yuan, marking a notable year-on-year increase of 125.65%. Additionally, the net profit attributable to shareholders witnessed an 87.99% year-on-year increase, amounting to 37.489 billion yuan.

The positive performance of the lithium battery industry persisted into Q1 2023. Operating revenue during this period reached 128.276 billion yuan, showcasing a substantial year-on-year increase of 69.85%. Similarly, the net profit attributable to shareholders experienced remarkable growth, amounting to 11.407 billion yuan, reflecting a staggering year-on-year increase of 405.18%.

Alongside the decrease in prices of major upstream raw materials, the profitability of the lithium battery industry showed signs of recovery in Q1 2023. Gross profit margin and net profit margin reached 19.83% and 8.89%, respectively, signifying an increase of 5.31 and 5.9 percentage points compared to the same period last year.

The destocking efforts undertaken by lithium battery enterprises in Q1 2023 resulted in a decrease in demand for upstream raw materials, subsequently leading to a continuous decline in raw material prices. As of the end of 2022, China's inventory of finished lithium batteries exceeded 110 GWh, with more than 35 GWh destocked in Q1 2023. This surplus inventory in lithium battery companies resulted in lower production output compared to shipment volume, leading to decreased demand for upstream raw materials. The inventory of lithium carbonate in China experienced significant growth, increasing from 7,202 tons at the beginning of 2023 to 54,917 tons in April 2023, marking a growth of 662.5%. Furthermore, the price of lithium carbonate decreased from 515,000 yuan/ton at the beginning of 2023 to 245,000 yuan/ton by the end of March 2023, signifying a decrease of 52.4%.

During Q1 2023, the shipment volumes of various lithium battery components such as lithium iron phosphate cathode materials, ternary cathode materials, anode materials, electrolytes, and separators witnessed declines of 32%, 20%, 17%, 27%, and 22% respectively compared to the previous quarter. The decline in lithium carbonate prices and decreased downstream demand consequently led to a significant drop in the prices of the four major upstream materials. As of May 5, 2023, the national prices of ternary materials 523/622/811 decreased by 46.3%, 42.1%, and 36.3% respectively compared to the beginning of 2023. Additionally, the average market price of lithium iron phosphate witnessed a 57.2% decrease compared to the beginning of 2023. Moreover, the prices of low-end, mid-range, and high-end artificial graphite anode materials experienced declines of 35.8%, 28.3%, and 16.1% respectively compared to the beginning of 2023. Lastly, the national prices of lithium iron phosphate electrolyte and electrolyte (ternary/conventional power type) dropped by 44.6% and 34.7% respectively compared to the beginning of 2023.

With the trend of vehicle electrification, the demand for lithium batteries is expected to rebound, leading to the continuation of high growth in the energy storage and new energy vehicle sectors. In 2022, the global and Chinese penetration rates for new energy vehicles were 13.3% and 25.6% respectively, indicating significant growth potential. In March 2023, China witnessed sales of 653,000 new energy vehicles, signifying a year-on-year increase of 34.9% and a month-on-month increase of 24.4%. The continuous enrichment of new energy vehicle models in the future is anticipated to positively impact the growth of new energy vehicle sales. Consequently, the growth in new energy vehicle sales is expected to drive a continuous increase in power battery shipments. As predicted by GGII, global and Chinese power battery shipments in 2023 are expected to reach 1,050 GWh and 850 GWh, indicating year-on-year growth rates of 54.4% and 77.1% respectively.

Furthermore, in terms of energy storage, GGII predicts that global and Chinese energy storage lithium battery shipments in 2023 will reach 250 GWh and 210 GWh respectively, marking year-on-year growth rates of 66.7% and 61.5%.

Between 2017 and 2021, China's installed capacity of power lithium batteries witnessed a significant increase from 36.4 GWh to 154.5 GWh. In the first ten months of 2022, China's installed capacity of power lithium batteries reached an impressive 224.2 GWh, experiencing a year-on-year increase of 108.7%. Additionally, in terms of energy storage, with the integration of new energy generation into the grid, new types of energy storage opportunities have emerged. Currently, lithium batteries dominate the new energy storage sector, accounting for 89.7% of the cumulative installed capacity in 2021. Between 2017 and 2021, China's shipments of energy storage lithium batteries increased from 3.1 GWh to 48 GWh. In the first half of 2022, China's shipments of energy storage lithium batteries reached 44.5 GWh, nearing the total for the entire year of 2021. Highgrow Lithium Battery predicts that China's shipments of energy storage lithium batteries will exceed 90 GWh in 2022, reflecting a year-on-year growth rate exceeding 87%. The growing trend of new energy vehicles and energy storage is expected to drive continuous growth in the demand for lithium batteries.

To meet the TWh era, the production capacity of lithium batteries is steadily expanding. Leading lithium battery manufacturers have announced plans for substantial capacity expansions. For instance, in the first ten months of 2022, Contemporary Amperex Technology (CATL) announced the addition of five new lithium battery projects, including a 100 GWh annual production line for power battery systems in Hungary. EVE Energy also added five lithium battery projects in China, with a total planned capacity of 110 GWh per year. Additionally, Funeng Technology added four lithium battery projects with a planned capacity of 75 GWh per year, while PHEV Energy added two projects with a planned capacity of 40 GWh per year. Guoxuan High-Tech added four lithium battery projects, with a total planned capacity of 80 GWh per year. The continuous expansion of lithium battery production capacity sets the stage for rapid industry development.

Tracking Overseas Lithium Resources: Anticipated Production Growth and Market Implications

The expected growth in overseas lithium spodumene production in 2023 is significant, with an estimated increase of approximately 168,800 metric tons of lithium carbonate equivalent (LCE). This represents a 50% year-on-year growth, with a significant release of incremental supply anticipated in the second half of the year. Our tracking indicates that the major increase in Australian lithium concentrate production in 2023 will come from various sources. These include increased production at Mt Cattlin due to grade recovery, full production operation at Altura, capacity expansion at Mt Marion, full production operation of the first two lines at Wodgina, and the start of production at the Finiss mine. Collectively, these factors are expected to add 750,000 metric tons of lithium concentrate, representing a year-on-year increase of 31%. While Australia is a key contributor, other regions, such as Africa, Canada, and Brazil, are expected to witness significant growth in lithium concentrate production as well. Several projects in these regions are scheduled to commence production in the first half of 2023, with a greater amount of incremental supply anticipated in the second half of the year. Noteworthy projects include Premier's Zulu lithium project, Huayou Cobalt's Arcadia project, Shengxin Lithium's Sabe lithium project, CMOC Resources' expansion and new project at the Bikita lithium mine, Sigma's Grota do Cirilo project, and Sayona's NAL project. These projects are expected to contribute to a total increase of 600,000 metric tons of lithium concentrate supply in 2023, excluding Australia. Overall, the overseas market is expected to witness an additional 1.35 million metric tons of lithium concentrate in 2023, equivalent to 168,800 metric tons of LCE.

Looking ahead to 2024, overseas lithium spodumene production is projected to increase by approximately 250,000 metric tons of LCE, reflecting a 50% year-on-year growth. However, it is important to note that the realization of this projected increase will require continuous monitoring as many projects are still in the early stages of construction. Based on our calculations, new lithium concentrate projects for 2024 are primarily located in Australia, Africa, North America, and South America. The projected overseas lithium spodumene production for 2024 is expected to add a combined capacity of 2 million metric tons, with contributions from mines commissioned in the second half of 2023 as well as new projects scheduled to start production in 2024. Notable projects include Australia's Holland and Kathleen Valley, Finland's Keliber project, and Canada's James Bay project. However, it is crucial to monitor the progress of these projects as delays can occur. Additionally, our calculations are based on officially approved overseas projects, and we cannot account for other projects or predict the sales of direct shipping ore (DSO) for 2024.

In terms of overseas salt lake lithium carbonate production, it is estimated to increase by 85,000 metric tons in 2023, reflecting a 35% year-on-year growth. According to our tracking, the progress of projects such as Allkem Olaroz Phase II, LAC's Caucharí-Olaroz project, and Livent's Hombre Muerto Stage 1 expansion in salt lakes aligns with expectations. These projects are anticipated to contribute a combined capacity of approximately 75,000 metric tons per year. However, there have been delays in the Hombre Muerto expansion at Livent, originally planned for production in 2022 but now rescheduled for 2023. The Argosy Salar del Rincon project and SQM's Sichuan lithium hydroxide plant have also experienced slight delays, contributing a combined capacity of 32,000 metric tons per year. The Salar del Rincon project, initially expected to reach full production by the end of Q2 2023, has delayed continuous operations until the current quarter, thereby improving production and operational levels in the second half of 2023. SQM's Sichuan lithium hydroxide processing plant, initially expected to start production in Q2 2023, is now disclosed to begin production within the next few months as per the Q1 2023 report. Considering the progress of each project, the overall increase in overseas salt lake production is estimated to reach 85,000 metric tons of LCE in 2023. However, the realization of these estimates still depends on the progress of projects in Argentina.

Looking ahead to 2024, the majority of incremental salt lake production is expected to come from Argentina, contributing an estimated 125,000 metric tons of LCE, a 38% year-on-year growth. However, continuous monitoring is necessary to assess whether these contributions can be realized as planned. Based on our calculations, overseas salt lake production is projected to add a combined capacity of 191,000 metric tons, with 30,000 metric tons from SQM in Chile and the remaining 161,000 metric tons from Argentina. Argentina, being a relatively new player in the lithium brine extraction sector, has less developed local infrastructure compared to Chile. Most projects in Argentina are controlled by primary producers with limited experience, although they are financially strong and known for efficient execution. Thus, ongoing monitoring is crucial to determine if each project can contribute as planned. According to our tracking, Allkem's Sal de Vida Phase 1 and Eramet's Centenario Ratones Phase 1 have indicated a one-quarter delay in their expected production time, resulting in a combined capacity of 39,000 metric tons per year. The progress of the remaining 152,000 metric tons per year of capacity requires continuous monitoring. Moreover, most projects are scheduled for production in the first half of 2024 (66% of capacity), with the remaining 34% planned for the second half of the year. Given the time remaining until 2024, we estimate that overseas salt lake lithium carbonate supply will increase by approximately 125,000 metric tons in 2024.

Looking at the next two years of overseas lithium resource supply, our calculations based on formally approved overseas projects indicate that there will be a significant increase. In 2023, overseas lithium spodumene concentrate is projected to contribute an incremental supply of 253,800 metric tons of LCE, a 45% year-on-year growth. For 2024, an additional 375,000 metric tons of LCE are expected, reflecting a 47% year-on-year growth. It is worth noting that most overseas lithium spodumene and salt lake projects are expected to commence production in Q2 2023, with ramp-up occurring in the second half of the year. Consequently, a greater supply is expected in the second half of 2023. Quarterly contributions in 2023 are estimated to be approximately 165,000, 182,300, 229,600, and 251,200 metric tons of LCE, respectively. The supply in the second half of the year is projected to grow by approximately 130,000 metric tons of LCE compared to the first half.

Construction Speed of a Lithium Refining Plant

The construction speed of a lithium refining plant can vary depending on factors such as project scale, available resources, regulatory requirements, and project management efficiency. On average, it can take 1 to 3 years to build a lithium refining plant, with larger and more complex projects potentially requiring longer construction periods. Unforeseen challenges and delays can also impact the construction timeline.

Efforts to expedite construction can be made through careful project planning, efficient resource allocation, and effective coordination among contractors and stakeholders. Accelerating the construction process can help meet the growing demand for lithium and support the development of the electric vehicle industry and renewable energy storage systems.

In conclusion, the demand for lithium resources, driven by the growth of the lithium battery industry and the new energy transition, presents a supply-demand contradiction that persists in the medium and long term. The growth of installed capacity for lithium batteries, overseas lithium concentrate production, and the construction of lithium refining plants are crucial factors to consider in analyzing the lithium market. Continuous monitoring and analysis of these perspectives will contribute to a better understanding of the lithium market dynamics and its implications for various industries.

Conclusion:

In conclusion, this paper analyzed the lithium resource supply-demand contradiction from three perspectives: the growth rate of installed capacity for lithium batteries, the growth of lithium mining supply, and the construction speed of lithium refining plants. The analysis revealed that the growth rate of installed capacity for lithium batteries is expected to continue to increase significantly, driven by the demand for new energy transformation. The construction of lithium refining plants faces challenges and slower capacity release compared to lithium mining. The cyclical nature of mining discoveries limits the pace of capacity release, leading to a supply-demand contradiction in the medium and long term.

The growth of installed capacity for lithium batteries has been remarkable, propelled by the new energy vehicle and energy storage industries. China, in particular, has witnessed impressive sales and power battery shipments, driving the growth of the lithium battery industry. The positive performance of the industry is expected to continue with the increasing trend of vehicle electrification and energy storage.

Overseas lithium spodumene production is projected to experience significant growth, with Australia being a major contributor, along with other regions like Africa, Canada, and Brazil. However, the realization of projected increases depends on the progress of projects and potential delays. Similarly, overseas salt lake lithium carbonate production is expected to increase, particularly in Argentina. Ongoing monitoring is crucial to assess the progress and contributions of these projects.

The construction speed of lithium refining plants varies, but efforts to expedite construction can support the growing demand for lithium. Overall, the demand for lithium resources presents a supply-demand contradiction in the medium and long term, and continuous monitoring and analysis of the lithium market dynamics are essential for a better understanding of its implications for various industries.

Note: The materials cited in this article primarily come from annual reports of listed companies, industry reports from investment banks, and professional presentation materials on YouTube. They are solely intended as a summary of industry trends by our team and should not be considered as investment advice. It is essential for you to conduct your own research and analysis when making investment decisions.

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