Lithium carbonate price rebound? GFE intervenes in lithium resource bargain?
I am bullish on "future oil" lithium carbonate. Seeing the continuous decline in lithium carbonate, in addition to the heartache of stock prices falling, I also feel regrettable that lithium resources are being sold at a low price. The whole world is nationalizing and controlling lithium resources, and theoretically, lithium prices should not be too low, at least not sold at a loss.
Recently, lithium carbonate futures have been falling sharply for several days, with futures prices hitting new lows. In the absence of a slowdown in the downward trend, the Guangzhou Futures Exchange finally intervened last night.
The Guangzhou Futures Exchange imposes limits on lithium carbonate futures trading! Hedging is not affected. What is the purpose of this policy? How to interpret it?
Here, I believe that intervening in the decline is, of course, to hope that the price will not fall further. What are the impacts if the price continues to fall? Isn't a lower price more conducive to the development of new energy vehicles?
Firstly, the Guangzhou Futures Exchange needs lithium resource companies to settle in, hoping that more lithium resource companies will apply to the Guangzhou Futures Exchange for lithium carbonate designated delivery warehouse qualifications, and the larger and stronger the companies that come, the more influential they are. If the price falls too low, falling below the actual market price, then the relevant companies will be reluctant to settle in for hedging.
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Lithium carbonate is relatively scarce, and at least if there is an oversupply, production can be reduced to control prices. There are not many companies with significant lithium resource resources in the entire lithium carbonate market. The demand for hedging is not strong, just a few companies, and if the price falls too much, they can simply stop or reduce production directly. In addition, most of the lithium resources in the market are imported, and domestic intervention has a limited impact.
From a long-term perspective, lithium carbonate, like oil, is a relatively limited resource with a high concentration and is greatly influenced by policies. It has a greater impact than oil, natural gas, and coal.
From November 30 to December 2, the United Arab Emirates hosted the World Climate Action Summit. Major forces from around the world are working hard to promote adherence to the institutions, principles, and goals of the climate change convention system. The comprehensive electrification of new energy vehicles is currently being phased out of production by major car-producing and consuming countries.The market's reliance on lithium carbonate is set to expand. Although there are occasional reports of oversupply, there are also corresponding policies of intervention, making it unrealistic for the price of lithium carbonate to remain consistently low.
The new energy vehicle (NEV) market is currently highly competitive. Amid the scramble among domestic automotive companies, Western NEV development has fallen somewhat behind, lacking even the qualifications to participate in the competition. The Japanese automotive industry can only lurk within the market by changing its identity. Honda and Toyota have introduced car brands with Chinese-style names, to the extent that they dare not even reveal their own names.
If we consider that all cars worldwide will be electrified and new-energy-powered within the next decade, then under the continuous activity of concept stocks for vehicle manufacturers and automotive parts, lithium, as the most critical material upstream, is too valuable to have its price remain low. The persistent undervaluation and sale of lithium carbonate is, in my view, a waste of resources.
Benchmark Mineral Intelligence, a market research organization, indicates that it generally takes 4 to 8 years for lithium resources to move from exploration to final production, and facilities to process ores and convert them into chemicals (i.e., hydroxides and carbonates) require 2 to 3 years to be built.
According to statistics from Guohai Securities, in 2021, the combined lithium carbonate production from Australia, South America, and China was approximately 555,300 tons, accounting for 96.39% of the global output, indicating a very high level of industry concentration.
The ongoing decline in lithium prices is generally expected to be a short-term adjustment by the overall market perspective. There is still a significant supply-demand gap expected in the future, and the situation where those with lithium resources reign supreme will not change.
For instance, as calculated by Everbright Securities, it is anticipated that the global deficit of lithium carbonate will exceed 160,000 tons by 2025, representing a 13% shortfall.
Furthermore, according to a report by Rystad Energy, based on the current outlook for lithium mining capacity, the supply shortage is expected to intensify by 2027, causing a delay in the production of 3.3 million electric vehicles. The situation is projected to worsen in 2028, affecting the production of 9 million electric vehicles, and by 2030, lithium prices could skyrocket by three times, impacting 20 million electric vehicles.
The International Energy Agency also pointed out in its report on mineral demand for clean energy transitions that by 2030, the world will need 60 new lithium mines to meet the demands of governments' decarbonization and electric vehicle plans. At that time, the global lithium supply gap is expected to reach 50%.
China is a major country in terms of lithium resources, ranking sixth in reserves. However, over 80% of domestic lithium resources exist in brines (primarily salt lake brines, with the remainder being geothermal brines, oil field brines, and well brines), which are of relatively lower quality compared to the South American lithium triangle. The high magnesium-to-lithium ratio leads to more stringent technological requirements for extraction."The future increase in lithium demand mainly comes from power batteries and energy storage batteries" has almost become an industry consensus. Generally speaking, the production of 1GWh of lithium iron phosphate batteries requires an average of 625 tons of lithium carbonate. In ternary batteries, a battery with a capacity of 1GWh requires an average of 684 tons of lithium carbonate. Among them, power batteries will continue to dominate in the future.
Bank of America: Power batteries will be in short supply as early as 2025
Bank of America Global Research released a report stating that the global electric vehicle market will face the threat of battery supply disruption, and power batteries will be in short supply as early as 2025.
The report states that there may be a shortage of global electric vehicle batteries between 2025 and 2026, when the utilization rate of battery production capacity will reach 85%. It is estimated that with the continuous increase in the global electric vehicle penetration rate, the global battery shortage situation will further intensify between 2026 and 2030, and by 2030, the utilization rate of global electric vehicle battery production capacity will rise to about 121%.
Although there are also views of oversupply, continuous oversupply is unrealistic under policy intervention. The current policy adjustments of the Guangzhou Futures Exchange indicate that the future price of lithium carbonate will be greatly affected by policy intervention. The speculation of "whoever gets lithium gets the world" is not expected to last long.
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