The price of lithium materials has skyrocketed and has not yet peaked. Where will the power battery companies go?

Whether lithium iron phosphate batteries overwhelm ternary lithium batteries again or ternary lithium batteries take the lead, the price of the most core lithium material has been soaring.

Positive and negative electrode materials, electrolytes, separators and current collectors are the most critical raw materials for lithium batteries. The most critical are positive electrode materials, including lithium carbonate, lithium hydroxide, etc. According to statistics from relevant agencies, as of August 24, the price of battery-grade lithium hydroxide was 127,500 yuan/ton, a 27% increase this month; the price of battery-grade lithium carbonate was 113,000 yuan/ton, a 24.18% increase this month. Since 2021, the price of battery-grade lithium carbonate has risen from 51,500 yuan/ton in early January to 113,000 yuan/ton, an increase of nearly 120%.

Driven by such a crazy market, the power battery industry, which is at the core of electric vehicles, is bound to face strong pressure for a reshuffle.

The demand for lithium batteries is increasing rapidly

The increase in demand for power batteries stems from the recovery in sales of new energy vehicles. Despite the impact of the COVID-19 pandemic, sales of new energy vehicles still achieved a 10.9% increase in 2020. Since 2021, the growth rate of new energy vehicle sales has accelerated. Since August, the production and sales of new energy vehicles have reached 99,000 and 101,000 respectively, up 39% and 49.5% year-on-year. From January to August, the production and sales of new energy vehicles reached 607,000 and 601,000 respectively, up 75.4% and 88% year-on-year respectively.

As the core of new energy vehicles, the power battery accounts for nearly 40% of the total cost of the vehicle, of which the cathode material accounts for 30% to 40% of the entire power battery. There are two types of cathode materials, lithium iron phosphate and ternary lithium. The former has advantages such as stability and high cost performance, while the latter has high energy density.

The booming market of new energy vehicles has led to a surge in the installation of power batteries. According to data from the China Automotive Power Battery Industry Innovation Alliance, my country's power battery installation in July was 11.3GWh, up 125.0% year-on-year and 1.7% month-on-month. Among them, ternary batteries installed a total of 5.5GWh, up 67.5% year-on-year and down 8.2% month-on-month; lithium iron phosphate batteries installed a total of 5.8GWh, up 235.5% year-on-year and 13.4% month-on-month.

As technology improves, lithium iron phosphate batteries are starting to gain momentum in many fields. In the field of two-wheeled electric vehicles, lithium iron phosphate batteries are also replacing lead-acid batteries used in the past. Although its price is twice that of lead-acid batteries, its energy density and cycle life are four times higher than the latter, and the cost of a single cycle is much lower than that of lead-acid batteries.

At the same time, driven by carbon neutrality, the growth in wind power and photovoltaic installed capacity has brought about demand for storage lithium batteries. At present, almost all energy storage batteries used in the domestic market are lithium iron phosphate batteries. According to GGII data, China's energy storage battery shipments in 2020 were 16Gwh, a year-on-year increase of 68.4%. It is estimated that by 2025, China's energy storage lithium battery shipments will reach 68GWh, 4.2 times that of 2020, with an annual compound growth rate of more than 33%.

At present, the medium and low nickel positive electrode materials in lithium iron phosphate and ternary materials are mainly lithium carbonate, while lithium hydroxide is mainly used to produce high nickel positive electrode materials in ternary materials.

The growth in demand for lithium iron phosphate has directly driven the growth of the upstream raw material lithium carbonate. Currently, the increase in lithium carbonate has far exceeded that of lithium iron phosphate.

Another raw material, lithium hydroxide, has also seen a surge in demand as ternary lithium batteries have become more nickel-rich, with its average price exceeding that of lithium carbonate. The main driving force behind this is the gradual increase in overseas high-nickel ternary battery models, which has led to an increase in lithium hydroxide export orders.

Supply mismatch leads to inevitable industry reshuffle

The corresponding to the high demand is the shortage of production capacity. According to Antaike statistics, my country's lithium carbonate production in July was 19,000 tons, a month-on-month decrease of 10%, due to maintenance of some smelters. The downstream lithium iron phosphate production capacity has been hovering at a low level, in a state of supply exceeding demand. Leading companies such as BYD, Defang, and Wanrun have all experienced inventory reduction. The monthly demand of CATL and BYD exceeded 40,000 tons. The unexpected demand directly led to the continued shortage of lithium iron phosphate, and large-scale production may be at the end of the year or early next year. The relative shortage of lithium iron phosphate cannot be alleviated in the short term.

In terms of lithium hydroxide, according to the analysis of Industrial Securities, the main new lithium hydroxide production capacity has been completed in the fourth quarter of 2020 (including Tianyi Lithium's 20,000-ton capacity and Yahua Group's Ya'an plant's 20,000-ton capacity, etc.), and the ramp-up capacity in 2021 is only Ganfeng Lithium's 50,000-ton Mahong Phase III project and Guangxi Tianyuan's 25,000-ton capacity. The remaining capacity is expected to be put into production in the second half of 2021, but considering that the mass production of lithium hydroxide requires a certain ramp-up period, and entering the downstream industrial chain requires a certain certification period, it is expected that the new supply of lithium hydroxide in 2021 will be relatively limited.

In addition, the production capacity of high-end lithium hydroxide certified by international battery manufacturers such as Japan and South Korea is mainly concentrated in several leading companies. The production capacity is relatively concentrated and the supply is in short supply.

If we trace back upstream, according to CICC's forecast, global lithium demand will increase from 430,000 tons of LCE (lithium carbonate equivalent) in 2021 to 1.5 million tons of LCE in 2025; on the supply side, in the long run, the development of lithium resources is highly uncertain, and the supply response speed may be difficult to match the growth in demand. It is expected that global lithium supply will increase from 480,000 tons of LCE in 2021 to 1.48 million tons of LCE in 2025, lagging behind demand growth.

Salt lakes and lithium mines are the current sources of lithium resources. In terms of global supply, Australian lithium mines account for 50%, South American salt lakes account for 40%, and Chinese salt lakes and mines account for 10%. Recently, the main producing areas of Australia and Chile have been severely affected by the epidemic, which has affected lithium production.

my country's lithium resources are not scarce, but effective development is insufficient, and the country has a high degree of dependence on foreign raw materials. According to relevant data, as of the end of 2019, China's lithium reserves/resources were 1 million/4.5 million metal tons, respectively, ranking 4th/6th in the world, belonging to the second echelon. In 2019, my country's lithium raw material output was about 7,500 metal tons, accounting for only 10% of the world's total. In that year, the basic lithium salt smelting capacity was as high as 71% of the world, and lithium salt shipments accounted for 49% of global consumption, a proportion far higher than 10%, which means that a large amount of lithium raw materials in my country need to be imported from abroad.

Tianfeng Securities pointed out that there is a 54,300-ton lithium salt gap in the second half of the year in China. At the same time, July and August are the peak seasons for the production of leading large factories. For example, Defang Nano's 40,000-ton lithium iron phosphate production line was put into production on July 5, and Fulin Seiko's 50,000-ton lithium iron phosphate production line will be put into production in August. Against the background of a month-on-month decline in domestic lithium carbonate production, the commissioning of new cathode projects in the short term will aggravate the imbalance between supply and demand and further drive up lithium salt prices. Therefore, the supply of lithium salt in the second half of the year is relatively tight.

Under such great price pressure, the price increase of power batteries is imminent. According to previous media reports, Penghui Energy, Zhuoneng New Energy, Hengdian Dongmei, Far East Battery, Delong Energy and many other companies have issued price increase notices. Although CATL refuted the price increase rumors, it also said that it would consider this issue.

If companies want to withstand the pressure of price increases, they must make arrangements in upstream raw materials and mineral resources. Therefore, buying mines has become one of the options for many companies.

In this regard, CATL is one of the earliest companies to make arrangements. In 2018, it participated in the lithium resource investment of overseas companies such as North American Lithium, and subsequently participated in the lithium mine and lithium carbonate project investment of companies such as Canada's Neo Lithium and Australia's Pilbara. In 2020, CATL also participated in the capital increase of lithium iron phosphate material companies such as Hunan Yuneng and Jiangxi Shenghua.

In addition, Ganfeng Lithium also recently completed the acquisition of Bacanora and acquired the Sonora lithium clay project in Mexico. So far, Ganfeng Lithium has completed its global resource layout and holds many high-quality mineral resources in Australia, Argentina, Mexico, Ireland, Qinghai and Jiangxi in China.