Energy storage lithium battery lithium price "not down but up", where is the inflection point?

Recently, the price of lithium carbonate is as high as 600,000 yuan/ton.

Many people are also optimistic that the high price of lithium salt stabilizes and is expected to fall, but the result is "not down but up". This round of lithium carbonate price rise, also let the lithium battery industry chain upstream and downstream enterprises into continuous agitation and unrest.

Now, the price of lithium carbonate has reached a new high of 600,000 yuan/ton, and we try to find important indicators of the price "turning point". We can't predict the exact lithium price curve, but we can try to judge the general outline.

01, lithium prices do not fall on the rise, the industry continues to be restless

Recently, the chairman of Changan Automobile joked on the forum of China Automobile industry, lamenting the "slack" of current automobile enterprises, the prominent problems of lack of core and expensive electricity, and suggested that relevant departments carry out anti-profiteering actions according to law, resolutely crack down on individual enterprises' raw material hoarding and speculation, and rectify the chaos in the battery industry.

Coincidentally, the chairman of GAC Group also joked at the World Power Battery Conference in July this year that all the money of automobile enterprises has been earned by lithium electric enterprises. Since then, GAC Group will announce the establishment of lithium battery company, and was formally established at the end of October. What is more interesting is that in early November, GAC eagerly announced the signing of a joint venture with mining enterprises to reduce the cost of raw materials and improve the strategic layout of the upstream raw materials field.

It can be seen that for the "upward integration" of downstream car enterprises, lithium battery is not the end point, but upstream lithium ore is the end point, because lithium ore is the culprit of this series of price chaos.

Therefore, the whole industry chain is not a lithium battery link problem, but the upstream lithium ore link problem.

It should be emphasized that with the high price of lithium salt and the increasingly prominent problem of the controllability of overseas lithium resources, the nerves of the whole industrial chain have been disturbed. On the one hand, the downstream demand has become fragile, and on the other hand, the upward purchase of ore has become a popular impulse.

Element I do not know, at this time to buy mines, but further raise the cost of lithium mining, which makes the future of lithium salt price return road is full of greater variables.

In any case, the high price of lithium is presenting the industry with a tough choice between sitting tight and taking a big gamble, which is understandable.

02. The core logic of lithium salt pricing

So, where does it end? Where is the inflection point?

The mechanism of the influence of lithium price is comprehensively analyzed in the Runaway Lithium Price, Where is it Heading? This round of lithium price rise is essentially driven by demand. The elasticity of downstream demand is relatively high, while the inelasticity of upstream supply leads to the rapid imbalance between supply and demand, and it is difficult to restore the balance in the short term. In addition, the expectation is fueling the rise of lithium price.

This imbalance is not between the supply of lithium and the actual demand for end-use electric vehicles and energy storage, but between the procurement demand for lithium batteries directly downstream.

At present, the general view of the market: in 2021, the global production of lithium salt is about 500,000 tons LCE, the demand is about 550,000 tons LCE; In 2022, the expected output is about 700,000 tons LCE, and the demand is about 750,000 tons LCE. In 2023, global supply and demand is expected to be more than 1 million tons of LCE, still in a tight balance.

In other words, the upstream lithium salt supply roughly matches the terminal demand, but it does not match the demand of the midstream lithium battery capacity. In recent years, a large amount of capital has poured into the midstream lithium battery sector, and there is a nominal capacity of 1TWh. Meanwhile, there is a TWh class capacity planning, which is either rich or expensive, and the growth rate of lithium battery capacity is much higher than that of lithium salt production expansion. Magnifies the contradiction between supply and demand for upstream lithium salt.

Therefore, it is not accurate to predict the change trend of lithium salt price only by analyzing the balance between upstream supply and end demand.

Under this logic, it is not the contraction of the downstream demand for new energy vehicles and energy storage that can suppress the upstream lithium salt supply, but the key point is when the midstream lithium battery production capacity will hit an inflection point.

Even if downstream end demand shrinks due to high costs, if the midstream lithium battery segment continues to be in high demand due to the rush of capital, it will not cause lithium salt prices to fall.

The influx of large amounts of capital has changed the decision-making mechanism of lithium battery enterprises. Instead of deciding whether to start construction on the basis of "net profit", they decide whether to start construction on the basis of "cash flow". The most important factor of "cash flow" is the depreciation generated by capital input. These capital become intensified upstream lithium salt "short of supply", boosting the lithium salt price rise of the primary factor.

03, lithium price inflection point where?

From the situation of the past two years, the balance of lithium salt supply and terminal demand is not sensitive to the formation of lithium salt price, and will continue to maintain this state next year, but it does not mean that the formation mechanism of lithium salt price remains unchanged.

In summary, it can be seen that changes in lithium battery production capacity are more sensitive to the formation of lithium price inflection point, and at least two "forward-looking indicators" can provide insight into changes in lithium battery demand:

First, the growth rate of "capital expenditure" of lithium battery enterprises has begun to slow down from the overall production capacity of the lithium battery industry and the expected order of lithium equipment. The growth rate of "construction under construction" of leading enterprises and the growth rate of "inventory" of lithium equipment enterprises have begun to decline, which is expected to be more obvious in 2023;

Second, lithium battery capacity "cash flow equilibrium point", lithium salt end is bound to "eat dry pressed", until the lithium battery industry as a whole to reach the "cash flow equilibrium point". At present, the overall gross profit margin of the industry has been struggling in the "profit balance point" after the continuous decline. However, due to the huge amount of "depreciation" caused by massive capital investment in the lithium battery industry in recent years, the tolerance of "cash flow balance point" is relatively high, the enthusiasm to start work is still high, and the market share is king. However, the "net operating cash flow" of some lithium battery enterprises has continued to decline. It is not expected to challenge the "cash flow equilibrium point" until the second half of 2023 or even 2024.

The above situation also explains why the price of lithium salt rises, but lithium battery companies still show a "hot" scene.

However, taken together, the impetus for lithium prices to continue to rise has begun to wane, but it will take time for prices to fall particularly sharply, and they are expected to remain high until the end of 2023.

Of these two indicators, the first indicator is relatively easy to observe and has some clues; The second indicator involves individual cash flow, which is difficult to grasp in time and will lag behind if the data of listed companies are relied on.

This is also why it is difficult to grasp the price trend of photovoltaic silicon or lithium salt, because there is no systematic macro index to refer to, only grasp a large number of micro data can be effective.

But anyway, if the method is right, the cognition will not be far away. Regarding the price of lithium salt, we need to focus on the start-up demand of lithium battery end rather than the installed demand of end users. The enthusiasm of lithium battery enterprises will not decrease, and the price of lithium salt will not fall.

Source: Mr Jiang Jing's capital circle