Lithium and cobalt are used to make batteries,Lithium, like cobalt, has experienced a frenzy in 2017, and has entered a deep adjustment. Now the prices are at historical lows.

1 what are the factors behind the long-term adjustment?

Similar to cobalt, the supply side is due to the rising price of lithium, so the capacity expansion is relatively fast, and then the supply exceeds expectations, which has happened in many industries.

As one of the key raw materials in the battery field, lithium capacity expanded rapidly in a year of strong demand, resulting in a large number of spillovers on the supply side.

From the perspective of the whole industrial chain, the upstream smelting end mainly relies on Salt Lake mining and lithium ore extraction. The ore price determines the lithium price, and the resource determines the cost. The lithium salt refining process has great requirements on the process, and the difference in the cash cost of lithium salt mainly comes from the purchase price of concentrate. Before 2017, the supply and demand of lithium ore in China were relatively balanced. Due to the sudden outbreak of the production of new energy vehicles in China, the market demand for lithium and lithium carbonate increased rapidly, and the early production capacity was relatively limited, resulting in the soaring price of lithium in 2017, the continuous growth of global lithium mine inventory, and the pressure of excess supply gradually shifted to mines.

The consequences of oversupply are also significant. The volume of Australian mines is too radical. Altura has taken the lead in reducing prices in the first quarter for a large number of shipments, and the export prices of other mines have also decreased significantly in the second quarter. Some mines have also suffered from the phenomenon of production and marketing disconnection, which further explains the downstream capacity to undertake the increment of lithium mines, and the ore smelting capacity has begun to mismatch. It is expected that Australian mines will continue to reduce the price in the third and fourth quarters of 2019 to achieve the purpose of shipping. The gap between industrial supply and demand directly affects the operating efficiency of enterprises.

Downstream demand mainly comes from traditional industries, 3C digital products and new energy vehicles.

The downstream demand of traditional industries is relatively stable. In recent years, the sales of mobile phones have gradually declined, and people's demand for new mobile phones has gradually declined. In the next step, the service life of smart phones is much higher than before, 3C digital products have declined, and the consumption of lithium batteries has further declined, making it difficult to maintain the stock price. The demand side of new energy vehicles is not optimistic due to the declining subsidies in recent years. Generally speaking, the downstream demand is not strong.

The price of lithium carbonate, as a raw material for batteries, has also been under pressure. At present, it is still under the pressure of suppliers to destock. The downstream is dominated by a small number of purchases, and the willingness to prepare goods is not obvious. However, the supply competition in the lithium carbonate Market is fierce. Manufacturers all aim to ship quickly. It is expected that the price may still be low in the short term, and the future rise is slightly weak.

At present, when the demand side continues to decline and the upstream and downstream prices gradually decline, mines or lithium salt plants with poor cash flow will be in trouble.

This is a bad time, but it is often the darkness before dawn.

2. What is the future supply and demand situation

In the next two years, the low-yield energy leader will become the main source of global new lithium resource supply, among which talison mining (Tianqi lithium holding 51% and Yabao holding 49%), sqm, nemaska lithium and MT Marion lithium are the low-cost supplies with the largest contribution to marginal increment, so whether the price recovers depends on the supply degree of the main leaders in the industry.

It is estimated that the global lithium resource demand equivalent to lithium carbonate from 2019 to 2020 will be 323000 tons and 437000 tons respectively.

From the perspective of global lithium carbonate supply and demand, the gap between supply and demand has widened since 2016, with excess of 2000 tons, 11000 tons, 66000 tons and 66000 tons from 2016 to 2019 respectively.

The situation of lithium hydroxide, which can be converted with lithium carbonate production line, is not very good. In recent years, the capacity is still oversupplied.

Cobalt was first promoted before, mainly because the supply side of cobalt has been significantly improved by Glencore's shutdown, and the supply side of lithium may have to wait for time to be cleared.

However, according to the data predicted by IDC, the demand level seems to have significantly improved by 2020.

As mentioned earlier, the demand side of lithium and cobalt is very similar, which mainly depends on the output of 3C consumer electronics and new energy vehicles to affect prices.

Data shows that mobile phones in the 3C field are declining year by year, and 5g mobile phones will be gradually recognized at least after 2020. It is certain that mobile phones will have an outbreak period.

After 2020, the domestic new energy vehicle market will also begin to enter the post subsidy era. The state will gradually focus on the popularity of electric vehicles. In the future, the competition in the new energy vehicle market will focus on products and technology. Although the decline of subsidies will cause a certain impact on the whole industry in the short term, it will be beneficial in the long term. Consumers are more willing to pay for the products and technology of vehicle enterprises. Another message can be noted that Tesla's Shanghai plant has begun trial production.

Therefore, in the short term, although the price and sales of new energy vehicles are under pressure, from the perspective of the general direction of all countries, there will still be great opportunities in the future. With the gradual improvement of the demand side, the lithium price will not recover until the supply is gradually digested and the policy is clearer.

If there is a definite direction for 5g and new energy vehicles in the future, the demand for lithium will increase by an order of magnitude.

As for the growth and periodicity of non-ferrous metals, I made it clear in the cobalt article that lithium, like cobalt, has both growth and periodicity. At present, although there is no obvious sign of improvement on the supply side, the certainty of improvement on the demand side is relatively large. The lithium price has fallen so far, and there should be little room for further decline.

3. Lithium listed companies at the transaction level

There are mainly two listed lithium companies, Tianqi lithium and Ganfeng lithium, which have high-quality mine quality and mine resources.

At the beginning of the year, the market dividend brought about a good overall market trend, which promoted the strength of the lithium sector. However, because the lithium price continued to decline, listed companies instead created a new low.

Previously, we mentioned the bottom grinding range of cobalt listed companies. Although the cobalt price has continued to decline since May, the share price of cobalt listed companies has entered the bottom grinding range, and there has been no new low. This implies the current market traders' views on the two companies. The cobalt price is not far from the bottom, and the darkest time point of the two companies has passed.

Lithium listed companies are a little different. After May, with the lithium price continuing to decline, lithium listed companies continue to hit new lows, and there is no obvious bottom grinding range like cobalt listed companies. However, it can be seen that from the end of August, although the lithium price continued to decline, lithium listed companies did not continue to follow. This may be the bottom grinding range of lithium listed companies.

The lithium industry focuses on the cost. Whoever has better mine quality, larger reserves and less impurities can survive at the bottom of the cycle, which Tianqi and Ganfeng have. But to make money, it is ultimately to see whether the price of lithium rises or not.

In the long run, lithium has both growth and new growth points of mobile phones brought by 5g mobile phonesNew energy vehiclesUnder the general trend, the elasticity of demand improvement next year is relatively large. However, because the price of lithium carbonate is still not at the bottom, lithium listed companies may have to go through a process of grinding the bottom.

Therefore, in the long run, the logic of investing in lithium is the same as that of cobalt, and the certainty is relatively large. But take a short look. Considering that lithium carbonate has not yet bottomed out, this may be a repeated bottom grinding range. If it rises too much, there will be a retreat risk, and bargain hunting can be entered.

Article source:Battery China Network