sChina Lithium Supply & Demand DynamicsMinmetals Securities ResearchJingwen SunAnalystsunjingwenwkzqSAC Reg. No: S0950519050001Fastmarkets Lithium Supply & Markets 2020Equity Research 2020/10/26Nonferrous Metals Sector Ratings NEUTRAL珍惜有限 创造无限Contents 目录01030204The darkest hour has passed, modest recovery on the way Lithium Supply: divergence happensLithium Demand: a new cycle backed by competitive products and favorable policies globallyWhat kind of lithium supply is expected by the green energy downstream in the future mass adoption?2珍惜有限 创造无限Exhibit 1: An overview of global lithium chemical market 2015-2020YTD (USD/t)Sources: Asian Metal, Trade Statistics, Minmetals Securities Research1. The darkest hour has passed, modest recovery on the wayIncentivised OEMs were themain driver of lithium demand & priceCathodes & Batteries aggressive capacity expansion drove demand and price high, along with stock-addingBattery markets reshuffled. The main driver returned to OEMs. Demandsupported by competitive productsSupplyDemandShortage of spodumene concentrateShortage of effective converting capacityHydroxide possesses premium, but is narrowing305 ,0 0 01 0 ,0 0 01 5 ,0 0 02 0 ,0 0 02 5 ,0 0 03 0 ,0 0 02015/012015/032015/052015/072015/092015/112016/012016/032016/052016/072016/092016/112017/012017/032017/052017/072017/092017/112018/012018/032018/052018/072018/092018/112019/012019/032019/052019/072019/092019/112020/012020/032020/052020/072020/09Li th iu m Ca rbo na te , CIF EU Li th iu m Hy d r o x id e , CIF EU In du s tria l Li Ca rb, C h in a , V AT in c l. Batte ry L i Carb, Chi na , VA T i nc l .In du s tria l Li O H , Chi na , VAT in c l . Batte ry L iOH , Chin a , VAT i nc l. Sou th K o r e a L i Ca rb i m po rts Avg . Sou th K o r e a L i O H im po rts Av g.珍惜有限 创造无限 When the cycle trending downwards, it is the brine producers who determine the bottom of lithium chemical prices When the cycle trending upwards, it is the non-integrated hard-rock convertors who determine the reasonable price level Current price is unsustainable as it broke the all-in cost and even reached the cash cost of 2nd tier brine producers Second 20H1, especially 20Q4, demand expansion supports lithium chemical spot market towards recovery Exhibit 2: Lithium carbonate cost curve in 2019 (Non-integrated, incl. royalties) Exhibit 3: Lithium carbonate cost curve in 2019 (Integrated, incl. royalties)Sources: Company data, Minmetals Securities Research estimates Sources: Company data, Minmetals Securities Research estimates1. The darkest hour has passed, modest recovery on the wayABCDEFG HIJKL MNOPQRS01 0 0 0 02 0 0 0 03 0 0 0 04 0 0 0 05 0 0 0 06 0 0 0 07 0 0 0 00 918 27 36 45 54 63 72 81 90 99108117126135144153162171180189198207216225234243252261270279288297306315324333342351360369378387Lithiumcarbonateunitproductioncost（RMB/t）C u m u lat iv e li t h ium p r o d u c t ion in 2 0 1 9 , L C ER e d ： B ri ne B l u e ： H a rd - roc kA n n u a l a v e r a g e p r ic e o f t e c h n ic a l grade li t h ium c a r b o n a t e 3 6 . 6 k y u a n / t o n ( b e f o r e t a x )A n n u a l a v e r a g e p r ic e o f B G li t h ium c a r b o n a t e 4 3 . 9 k y u a n / t o n ( b e f o r e t a x )ABCDEFG HIJKL MN OPQRS01 0 0 0 02 0 0 0 03 0 0 0 04 0 0 0 05 0 0 0 06 0 0 0 07 0 0 0 00 918 27 36 45 54 63 72 81 90 99108117126135144153162171180189198207216225234243252261270279288297306315324333342351360369378387Lithiumcarbonateunitproductioncost（RMB/t）C u m u lat iv e li t h ium p r o d u c t ion in 2 0 1 9 , L C ER e d ： B ri ne B l u e ： H a rd - roc kA n n u a l a v e r a g e p r ic e o f t e c h n ic a l g r a d e li t h ium c a r b o n a t e 3 6 . 6 k y u a n / t o n ( b e f o r e t a x )A n n u a l a v e r a g e p r ic e o f B G li t h ium c a r b o n a t e 4 3 . 9 k y u a n / t o n ( b e f o r e t a x )4珍惜有限 创造无限Exhibit 4: Lithium chemical capacities in China continue to expand (ktons, LCE) Exhibit 5: WA miners spodumne stocks declined (dmt, Talisons data not included)Sources: Company data, Minmetals Securities Research2.1 Status of Mine, Chemical, and Stocks Mine: typical signs of bottoming, however most were voluntary supply cuts, few truly quitted or squeezed out Chemical: aggressive capacity expansion continued in 2018-2020YTD, capacity utilization rates diverging significantly Stocks: most spodumene stocks are in the hands of leading converters and new entrants, chemical is also de-stocking Disruption of Covid-19: Hard-rock supply chain proved resilient, SA brines expansion progress at risks2. Lithium Supply: divergence happensSources: Company data, Minmetals Securities Research estimates5-5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 02 5 0 , 0 0 03 0 0 , 0 0 017Q117Q217Q317Q418Q118Q218Q318Q419Q119Q219Q319Q420Q120Q2W A L it h iu m C o n c e n t r a t e Pro d u c t io n , d mt W A L it h iu m C o n c e n t r a t e Sale s , d mtE s t . W A L it h iu m C o n c e n t r a t e S t o c k s , d m t0200400600800100012002016 2017 2018 2019 2020E 2021E 2022E 2023ES p o d u m e n e C o n v e r s ion B r i n e p r o c e s s i n gL e p ido li t e C o n v e r s ion P u r if ic a t ion / R e c y c l ing珍惜有限 创造无限Exhibit 6: Estimates for lithium hard-rock capacities expansion globally, 2009-2025 (tons, LCE),Sources: Company data, Minmetals Securities Research estimates01 0 0 0 0 02 0 0 0 0 03 0 0 0 0 04 0 0 0 0 05 0 0 0 0 06 0 0 0 0 07 0 0 0 0 08 0 0 0 0 02 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 E 2 0 2 0 E 2 0 2 1 E 2 0 2 2 E 2 0 2 3 E 2 0 2 4 E 2 0 2 5 EG l ob al H ard - rock Lit hium C ap ac i t y E sti mat es 20 09 - 20 25 ( t on s, LC E ) J i a n g x i -Yi c h u nJ i an g x i -H e Yua nAb a -M a e rk a n gAb a -M a e rk a n g Da n g BaG a n z i -Cuo l aG a n z i -J i a J i KaAb a -G u a n Yi n Qia oAb a -L i J i a G o uM i b raBra z i l -USG SPo rtu g a l -US G S/Ro s k i l lM a n o n o /Ki t o to l oBi k i taSy v ä j ä rv iL e v i ä k a n g a sO u to v e s iLä nt täM a v i s L a k eBl a c k s ta i rsKi n g s M o u n ta i nZi g Z a g L a k eSe p a ra ti o n Ra p i d sCara c l e Cre e k /Geo rg i a l a k eAuth i erSi rm a cWh a b o u c h iRos e T a n ta l u m -L i th i u mQ u e b e c L i th i u mWo l fs b e rg L i th i u mM t Hol l a n d -Ea rl GreyWo d g i n aBa l d Hi l lPi l g a n g o o ra -AJ MPi l g a n g o o ra -PL SM T M a ri o nJ a m e s Ba yM T Cat tl i nG re e n b u s h e s2. Lithium Supply: divergence happens6珍惜有限 创造无限Exhibit 7: Estimates for lithium brine operations capacities expansion globally, 2009-2025 (tons, LCE)Sources: Company data, Minmetals Securities Research estimates01 0 0 0 0 02 0 0 0 0 03 0 0 0 0 04 0 0 0 0 05 0 0 0 0 06 0 0 0 0 02 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5G lob al L it h ium Bri n e Capacity E stim ates 20 20 - 20 25 ( t o n s, L CE )Ti b et G uo ne n gJ i n ta i -Ba l u n m a h a iXi n g h u a -Dac h a d a nM i n m e ta l s -Yi l i p i n g Xi n g h u a -Da c h a d a nZa n g g e -C h a e rh a nL a n k e L i t h i u m -Cha e rh a nQ i n g h a i H XR-W e s t Ta i j i n a e rCITI C G u o a n -W e s t Ta i j i n a e rEa s t Ta i j i n a e r-Ne wEa s t Ta i j i n a e r-O l dZh a b u y eCom i b o l -Uy u n iM a ri c u n g a J VERAM ET-Ce n te n a ri o -R a to n e sIL C-M a ri a n aTi b e t Su m m i t-SDL ANeo L i th i u m -3 QArg o s y -R i n c ó nEn i rg l -Ri n c ó nO ro c o b re -O l a ro zL i th i u m Am e ri c a s -Cau c h a ri -O l a ro zG a l a x y -Sa l d e Vi d aAl b e m a rl e -An to fa l l aAl b e m a rl e -Ata c a m a +Sl i v e r Pe a kL i v e n t-Ho m b re M u e r toSQ M -Ata c a m a2. Lithium Supply: divergence happens7珍惜有限 创造无限Exhibit 8: Lithium chemical production in China quickly recovered form the disruption brough by Covid-19, meeting the global demandExhibit 9: China is the worlds leading producer and consumer of lithium chemicals, but battery grade hydroxide is most consumed by oversea OEMsSource: Asian Metal, Minmetals Securities Research Source: ChinaLi Org, Asianmetal, Minmetals Securities Research2.2 Chemical busines is easy to enter, but difficult to forge competitiveness The continued expansion of lithium chemicals capacity in China is ultimately due to the low barrier to entry However, lithium is not a standardized commodity, which needs know-how to meet high specs required by EV battery downstream Forging competitive edge: (1) going integrated and integrated well (2) diversified resources & product (3) looking long-term and cooperating with quality customers (4) Investing in plant automation, R&D and ESG050 001 0 0 0 01 5 0 0 020 00 025 00 030 00 0Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Mar-19May-19Jul-19Sep-19Nov-19Jan-20Mar-20May-20Jul-20Sep-20C hi na C arbona t e & H y f r ox i de P orduct i on （ t ）L i th i u m Hy d r o x i d e （ t ） T e c h n i c a l G r a d e L i th i u m Ca r b o n a te （ t ）B att ery G r ad e Li thi um Car bo na te （ t ）2. Lithium Supply: divergence happens84 .1 4 .25 .3 48 .31 2 .51 6 .21 0 .92 .1 2 .22 .53. 54 .28 .16 .60510152025302 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 .1 -9Li th i u m Ca rbo na te (1 0k t) Li th i u m Hy dro x i de (10 k t)珍惜有限 创造无限Exhibit 10 ： 2020-2025 global lithium hydroxide capacity forecasts, the capacity run rates will diverge significantly Sources: Company data, Minmetals Securities Research estimates2. Lithium Supply: divergence happens01 0 0 , 0 0 02 0 0 , 0 0 03 0 0 , 0 0 04 0 0 , 0 0 05 0 0 , 0 0 06 0 0 , 0 0 07 0 0 , 0 0 02014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025ECh a n g h e h u a L ith iu mZ h a b u y eZ h o n g h eJia n g teT ian yu a nY o n g zh e n gRu ifuZ h iyu a nT ian yiY a h u a - Y a 'a nY a h u a - G u o liY a h u a - X in g sh e n gRo n g h u i- Y iduRo n g h u i- Jiujia n gL iv e n t- Na n to n gA L B - Jian g li o ldA L B - Jian g li n e wGa n f e n gT ian q i- s h e h o n gA M GP OS COOr o co b r eRu ssianL iv e n t- USCo va le n t L ith iumT ian q i- A UA lbe m a r le - W A ( M A RB L JV )A lbe m a r le - USS QM - Ch il e9珍惜有限 创造无限Exhibit 11: Compared with brine producer with cost advantage, hard rock capacities are driven to focus on premium product like battery grade hydroxideSource: Albemarle, Minmetals Securities Research2. Lithium Supply: divergence happens10