Is lithium valuable?

Is lithium valuable? There are two opposing views in the industry.

One view is that since there are abundant resources, companies in various countries have been frantically looking for mines and expanding production since the past two years, and lithium resources will soon be sold like cheap goods, which is meaningless.

Another view is that high-grade ores are scarce, and the pattern is similar to the monopoly of Coca-Cola and Vale on iron ore. They are valuable, and low-grade ores will never have a chance to emerge.

The latter even compared lithium to oil, gold, and other commodities such as copper, aluminum, lead and zinc during the bull market ten years ago, saying that a tenfold increase in price is not a dream.

Lithium battery cars are almost equated with new energy vehicles. Fuel cells may have a future in ten years. There are a lot of problems that cannot be solved at the moment. Moreover, after the large-scale commercial use of the former, the necessity to develop fuel cells basically no longer exists.

We discussed cobalt last year, and then cobalt really rose. In fact, the importance and elasticity of cobalt are far less than that of lithium. It is just a short-term speculation and has no future.

First, the technical path of high nickel and low cobalt has become a reality. From 111 to 523 to 622 and then to 811, the proportion of cobalt in the positive electrode material has dropped rapidly, and only one-third of the original is needed;

Second, the amount of cobalt in 3C batteries and other fields is relatively large, and the incremental demand brought by power batteries is limited;

Third, cobalt is a by-product mineral. It is difficult to increase mining volume and accumulate a lot of copper inventory just to make money from cobalt.

Lithium is different. It is an indispensable carrier and transmitter of energy in batteries.

In 2015, the global lithium salt production was 160,000 tons (lithium carbonate equivalent), of which 35% was used in batteries. China produced 78,700 tons, of which 70% was used in batteries. This shows that China's demand for power batteries is accelerating rapidly.

In the future, based on the average capacity of 45KWH per new energy vehicle, the demand will increase by 10,000 tons for every 250,000 vehicles. Since 2017, the world has added 3 million vehicles and China has added 1.2 million vehicles. In 2020, the demand for lithium carbonate equivalent will increase by 120,000 tons, far lower than the planned new production capacity.

There are also new planned production capacities being announced continuously, such as the expansion of the Talison mine to 1.43 million tons and Tianqi's new construction of 24,000 tons of lithium hydroxide.

Among the positive electrode materials and electrolytes, lithium carbonate or lithium hydroxide is the main component, accounting for the bulk of the cost. There are numerous technical analysis articles of this type, and listed companies have also explained them tirelessly, so I will not repeat them here.

The biggest controversy is that there is no shortage of lithium resources in the earth's crust. Theoretically, there are enough to supply the production of billions of cars every year. So is it worth the money?

Let’s look at the reserves first: there is indeed no shortage of lithium in the earth’s crust, but it is mainly found in seawater and cannot be refined. The main mineable sources are salt lakes, spodumene mines and lithium mica mines. The lithium reserves are 13 million tons and the lithium resources are 39.5 million tons.

Among lithium resources, 61% are brine lithium resources, and ore lithium accounts for about 34%. Lepidolite is rare and of low quality, so it is impossible to become the main supply, so we only need to study salt lakes and spodumene mines.

The lithium extraction technology of Qinghai Lithium Co., Ltd., a subsidiary of Western Mining Group, comes from the Qinghai Institute of the Chinese Academy of Sciences. According to relevant personnel of Qinghai Lithium, the designed production capacity of Qinghai Lithium is 10,000 tons, and the production process has been completed.

However, due to the unresolved dispute over the ownership of the brine resources of Dongtaijinaier Lake between CITIC Group and Western Mining Group, Qinghai Lithium has been facing a shortage of resources and has been unable to achieve full production.

In a word: most salt lakes look beautiful, but in fact they cannot form effective supply for a long time. With profits at the forefront, it’s not that they don’t want to do it, but that they can’t do it. Even if they can extract water, they can’t make any money.

If electric vehicles are to replace fuel vehicles, the battery cost must not be higher than that of fuel engines. This is a hard constraint, so there is little room for price increase. The future will depend on quantity and economies of scale.

Of course, it is impossible for prices to fall sharply during the golden years of rapid development of electric vehicles, because several monopoly companies have signed long-term contracts with several large downstream battery factories, and they determine production based on sales and have control over pricing. Small companies have no need to act recklessly, and local price cuts will not affect the overall situation.

However, it is possible that lithium hydroxide prices will increase in the near future. The supply and demand relationship is tight, the total number of electric vehicles is small, domestic low-end vehicles are subsidized, and Tesla is a star car. The total price is not low, and the price increase of materials can be fully accommodated. There is elasticity, and prices may increase before production capacity is expanded in 2019.

In summary, taking the price of lithium carbonate as an example, the trend may be to rise first and then fall.

There will be a certain increase in the short term, a slight decline next year, and a sharp decline after 2019, starting a brutal reshuffle.

The price may fall back to 50,000-60,000, and small mines and processing plants with weak financial strength will withdraw one after another. After 2022, the price will rise steadily to around 70,000.

Lithium hydroxide is slightly higher, and eventually the upstream and downstream manufacturers will form a strong alliance (several oligarchs with high-quality mines and several battery giants such as Panasonic and CATL with high-quality products), and the industry will develop healthily in the long term. Huge profits are unlikely, but the scale effect will become more and more significant. (Xiong Xuchun)