Unusually hot cross - boundary lithium electricity, business is easy to do?

The technical characteristics of the lithium industry, as well as the potential for overcapacity and falling prices, cannot be ignored.

On November 23, data released by Shanghai Steel Association showed that the average spot price of battery grade lithium carbonate was 590,000 yuan/ton, which did not rise or fall for 8 consecutive trading days. This price is about 14 times the average price of 41,000 yuan per ton in June 2020.

Soaring lithium prices, supply and demand of the situation, attracted competitors flocked into the board. Since this year, a number of real estate, titanium dioxide, clothing, textile, jewelry, paper and other enterprises have announced cross-border lithium, expand business to lithium materials, upstream lithium resources, lithium battery and other segments, the case of costly acquisition repeatedly refresh investors' mobile phone screen.

According to the incomplete statistics of the first business reporter, so far, this year has more than 30 listed companies crossover into the lithium industry, with an average of 3 enterprises a month to enter the speed, boosting lithium become one of the most popular investment circuit this year. The market reaction, however, was not entirely positive.

In mid-November, Cuihua announced that it would pay 612 million yuan in cash to acquire 51% of Sidui Lithium, which is owned by its counterparty Chen Siwei and Sidui Technology. Three days later, it received a letter of concern from the Shenzhen Stock Exchange, requiring the company to carefully verify and supplement 8 issues, including the high value-added rate of the target company in this transaction. As of the close of 22, the share price of Cuihua jewelry has fallen to 16.79 yuan from 23.87 yuan per share when the announcement was made.

Several interviewed industry insiders believe that, as a typical cyclical industry, the replacement of the old and new lithium industry is a common thing. Some enterprises seek new investment opportunities and choose to switch the track and cross the boundary layout of lithium industry. Their behavior itself also has a certain rationality. However, we cannot ignore the technical characteristics of the lithium industry, as well as the possibility of overcapacity and falling prices. At the same time, some local governments should not intervene too much in the lithium market, including various incentives and support means, so as to avoid exacerbating the contradiction between upstream and downstream supply and demand.

Major lithium battery material capacity planning all excess

The latest data from the China Passenger Federation shows that in October 2022, the installed capacity of power batteries for new energy vehicles was 21.4GWh (1GWh equals 1 million KWH), up 60.1 percent year on year. The cumulative installed capacity in 2022 is 193.6GWh, up 99.9% year-on-year. Lithium iron phosphate batteries still maintain rapid growth in the short term. In October, the share of lithium iron batteries exceeded 67%, with a month-on-month growth of 5.3%.

Xinferns information analyst Zhang Jinhui told Cbusiness reporters that the core logic of lithium market overheating is the penetration rate of new energy vehicles climbing too fast. In 2020, the penetration rate of domestic new energy vehicles is 5.8%, in 2021 the penetration rate is 13.4%, it is estimated that this year may reach 28%, and next year may even reach 35%. This has left the entire lithium-ion battery industry chain in short supply.

The upstream of the lithium battery industry chain can be roughly divided into positive material, negative material, electrolyte, diaphragm four parts. The cathode material is the core component of lithium battery, and also the key component that determines the performance and manufacturing cost of lithium battery. For a new energy vehicle, 60% is the battery cost, and 40% of the battery cost is the positive electrode material.

Hubei Rongtong Gaoke Advanced Materials Co., LTD. (hereinafter referred to as "Rongtong Gaoke") is a private enterprise engaged in the research and development, production, recycling and recycling of cathode materials for new energy batteries. China's shipments of lithium iron phosphate material have reached 417,000 tons in the first half of 2022, up 142 percent year on year, brokerage data showed. Among them, the shipments of the top four lithium iron phosphate companies accounted for more than 50%, and Rongtong High-tech was among them, with a market share of about 10%.

Although the industry has entered a period of rapid growth, He Zhonglin, chairman of Rongtong High-tech, is not optimistic about the "gold rush" of lithium electric materials that many enterprises have crossed the boundary.

"Different from the reproducibility of the Internet information industry, the lithium electric material industry has obvious characteristics of manufacturing industry: product quality is affected by various complex factors such as personnel, machinery, raw materials, methods and environment, all of which are indispensable. As a result, building a stable production line usually requires a long period of testing and commissioning and technical precipitation." He Zhonglin told China Business News.

He gave reporters a simple account: at present, the rise of lithium electric materials is driven by the downstream power battery, and the verification cycle of the power battery is usually about a year and a half. Each charge and discharge of a battery is a cycle. How many times can cycle constitutes the life cycle of a battery. This value must depend on actual measurement. The power battery usually tests 2,000 cycles, which takes at least 250 days based on eight cycles per day. Given the variables that can arise in testing, this work is rarely completed within a year. For another example, the positive electrode belongs to electronic material, rather than chemical material, which has strict requirements on the air humidity and dust concentration of the workshop, and the experience of different regions cannot be shared. Based on the 500,000 tons of lithium iron phosphate production line claimed by some enterprises, it is roughly estimated to cost 12 billion yuan in cash. However, waiting for more than a year to verify, but may not be able to supply, the risk is obviously too large.

If a small amount of investment is made to build production lines, it will be difficult to enter the mainstream. If it goes into mass production, it is likely to be abandoned. This is a dilemma that every company faces when entering the game. Generally speaking, the practice in the industry is to build a pilot line, verify the product, make some technical changes, and then expand production. After we acquired the predecessor enterprise of Rongtong High-tech from Peineng Technology, we first experienced 6 years of technology accumulation. Later, it took us another 6 years to manage the complete machine factory by ourselves. A total of 12 years of technology accumulation into the process and plant design, which led to the current scale." He Zhonglin said.

For the competent crossover, having a factory does not mean that they can make good products. How to "stand on their feet" is a survival challenge they have to face. For veteran players at the head of the industry, having a good product does not mean having a broad market and sales, and the test of how to "survive" in the shadow of overcapacity is already on the way.

According to the High-Tech Industry Research Institute, the planned production capacity of major lithium battery materials by 2025 is already in excess. The planned total production capacity of anode material by 2025 is 5 times of the expected demand of the current year, lithium iron phosphate is 4 times, electrolyte and copper foil are more than 2 times, and diaphragm is about 1.5 times.

In fact, this kind of malaise has been reflected in this year's market. In the first 10 months of this year, only lithium carbonate and nickel sulfate prices rose; The price of 6-micron copper foil fell 20%. As a large number of new companies are crowding into each segment of the lithium material circuit, the concentration of downstream battery factories is increasing, so the competition for orders is more intense.

Zhang Jinhui believes that, like many industries in the past, the "internal roll" and "gross margin killing" brought by this massive competition will continue from this year. But he thinks overcapacity should be less of a problem than reflected in the forward data. "Theoretically, the power battery currently planned in China can reach 5,000 GWH, but it is just a PPT level. In fact, the battery investment per GWh is about 300 million to 400 million yuan, which is a test of your financing ability, and it is not possible to calculate the actual capacity according to the plan."

"The whole industry chain is working for lithium carbonate, working for lithium mines, and this unequal distribution of benefits is the biggest problem at the moment. And this problem is mainly due to the lack of lithium resources in our country, almost no solution in the short term." Zhang Jinhui said.

Is battery recycling the new Blue Ocean?

With the price of lithium carbonate soaring, many manufacturers are thinking that instead of buying expensive raw materials from overseas mines, they might be better off recycling the batteries they already have on the domestic market. On the one hand, it can save the cost of raw materials and promote the sustainable development of the new energy industry. On the other hand, it can strengthen environmental protection and reduce the carbon emission of the whole life cycle of battery products.

Gao Yanli, vice president of China Materials Recycling Association, told reporters that China's lithium battery recycling industry is still in its infancy. In recent years, many service outlets and enterprises for recycling waste batteries have appeared in the market. About 80% of the batteries are from discarded or faulty automobile batteries, which are used in energy storage stations and other scenarios. Although from the point of view of resource saving, the development of step use of power battery plays an obvious role, but the actual operation of the process exposed a lot of problems.

"Because the batteries themselves are obsolete due to insufficient capacity, when they feed the remaining power into the power station, it is like a drop of water into the sea, and then they are sent back without input. At the same time, production, consumption and other aspects of instability. So the current policy has been to emphasize screening and security assessment. However, it is not a good deal to replace the components in the battery pack if necessary, as required by the regulations." Gao Yanli said.

Gao Yanli believes that the main reason for the current echelon use of power battery industry loopholes is that several years ago, the industry of new energy vehicle power battery is inexperienced, the lack of norms, resulting in uneven quality of the source battery, which needs to pay a high cost for detection and transformation. This situation will be improved with the continuous refinement of the power battery specification and the development of battery technology. At present, enterprises can recycle resources for power batteries, including refining the precious metal in order to give full play to its utilization value.

Power battery recycling is also a positive investment direction of He Zhonglin. "The next five years, I think, will be the peak of the recycling of lithium iron power batteries. At present, the practice of many people in the power battery industry is to recycle and disassemble the ternary battery to refine the precious metal. In fact, few people recycle the lithium iron phosphate battery, because it is likely to lose money. What we need to do is to recover lithium iron phosphate, reverse reaction to produce lithium carbonate and other substances, through in-depth research and development for full material recovery and recycling. As long as a mature circular economy industrial park is developed, the shortage of domestic lithium resources will no longer bother the upstream and downstream lithium power industry chain."

However, this attractive blue ocean market also faces challenges, the biggest of which is a collapse in the price of lithium carbonate.

In this, He Zhonglin said, with the current investment cost calculation, as long as the price of lithium carbonate does not fall below 100,000 yuan/ton, the power battery recycling business is basically profitable. Given the current state of power battery demand and the cost of lithium ore in South America, the chances of falling through the floor are slim. Even if it happens by accident, on the one hand, the upstream raw materials will timely respond to the production reduction, so as to achieve the dynamic balance of market supply and demand; On the other hand, the state may introduce supportive policies to avoid devastating the industry.

Zhang Jinhui believes that there is a time difference of 5 to 8 years between the installation and retirement of power batteries. Judging from the sales of the first two years, the blue ocean market of power battery recycling is expected to arrive in 3 to 6 years. The urgent task is to establish a set of standardized mechanisms to make battery resources more efficient and safe transfer. He suggested that the country could set up a similar tobacco monopoly mechanism, let some enterprises specialize in battery recycling or strictly manage the qualification of the recycling enterprise white list, so as to form a closed loop of the battery recycling industry.

On November 18, the General Office of the Ministry of Industry and Information Technology and the General Office of the State Administration for Market Regulation issued the Notice on the Coordinated and Stable Development of the lithium-ion battery industrial chain and supply chain. According to the document, the imbalance between supply and demand of domestic lithium industry chain and supply chain is serious, and the price of some intermediate products and materials fluctuates wildly beyond the normal range. Some links capacity blind expansion, low - quality and low - price competition occurs. All localities should continue to promote a better combination of effective market and competent government, make great efforts to break down local protection and regional divisions, and jointly build a unified national lithium power market that is efficient, standardized, fair competition and fully open.

Lin Boqiang, director of the China Institute of Energy Policy at Xiamen University, told China Business News that the market is optimistic about the potential of new energy development, and local governments are accelerating the layout of related industrial chains and offering comprehensive policies such as tax breaks, fiscal subsidies and land concessions. But it is also prone to feeding irrational sentiment in the market. "If the attraction of these policies is reduced or not, enterprises will carefully consider their ability to resist risks and survive the fittest in accordance with market rules, which is more conducive to creating a healthy and stable market environment. At the end of this year, the national new energy vehicle purchase subsidy policy is facing the cancellation of the node, whether these industry incentive policies should also be considered as appropriate."

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