On June 24, Nanjing Hanrui Cobalt Co., Ltd. (“Hanrui Cobalt” for short) submitted a listing application to the main board of the Hong Kong Stock Exchange. CICC is its sole sponsor.

Hanrui Cobalt was founded in 1997,It is one of the few enterprises with a complete cobalt industry chain in China and one of the world's leading professional cobalt powder manufacturers.The business covers the complete industrial process, including ore acquisition, rough processing, refining and purification, and production of cobalt powder and cobalt compounds. According to the Frost & Sullivan report, based on production as of December 31, 2020, Hanrui Cobalt is the third largest producer of cobalt powder in the world and the largest producer of cobalt powder in China.

As early as March 6, 2017, Hanrui Cobalt was listed on the GEM of the Shenzhen Stock Exchange.The second listing in Hong Kong is intended to raise funds to expand production lines and overseas investment, acquisition, and exploration of upstream mineral resources related to new energy vehicles such as cobalt, nickel, and lithium.

According to the prospectus, Liang Jiankun, former chairman and Liang Jie, are currently in a father-son relationship and hold 15.18% and 16.57% of the company's shares respectively.

1

Downstream demand is clearly supported

Natural sources of cobalt include copper-cobalt ores, nickel-cobalt ores, etc. Although China is a major consumer of cobalt resources, its reserves are very limited, accounting for about 1% of the world; while the Congo, Australia, and Cuba account for about 78% of the world's cobalt ore reserves.

Over the past few years, various countries and regions have strongly supported the pure electric vehicle industry, and global sales of pure electric vehicles have achieved rapid growth, from 458,000 units in 2016 to 1.99 million units in 2020, with a compound annual growth rate of 44.4%.

Also,The 5G era began a wave of iterative updates of smart terminal products, driving global sales of 3C products to rise year by year.From 2016 to 2020, global shipments of 3C products increased from 1.91 billion units to 1.98 billion units, with a compound annual growth rate of 0.9%. At the same time, wearable devices have great market potential in the future, which may drive continued growth in global 3C product shipments. Global 3C product shipments are expected to reach 2.63 billion units by 2025, with a compound annual growth rate of 5.9%.

The power batteries used in pure electric vehicles and the 3C batteries used in 3C products are one of the main downstream consumption areas of cobalt products.3C batteries consumed the most cobalt, accounting for 46.7% in 2020; power batteries were the second largest cobalt product consumption area in China, accounting for 24.9%. Driven by the growth of pure electric vehicles and 3C consumer electronics, global consumption of cobalt products is growing rapidly. The consumption of cobalt in the Chinese market also increased from 31.3 kilotons in 2016 to 42.9 kilotons in 2020.

2

Performance is constrained by fluctuations in cobalt prices

According to the prospectus, from 2018 to 2020, the company achieved operating income of 2,782 billion yuan, 1,779 million yuan, and 2.254 million yuan respectively; net profit from the mother's mother was 708 million yuan, 014 million yuan, and 335 million yuan.

The company's performance is clearly affected by the market forces of the cobalt and copper industry. Among them, the influencing factors include supply dynamics and price fluctuations.

The supply side depends on the availability of resourcesNew cobalt and new copper ores being explored can provide competitors with additional resources at competitive costs, which may affect global supply.Cobalt prices and copper prices are affected by the global economy, production costs, freight costs, exchange rates, etc.Once prices drop significantly, it will adversely affect the company's business and operating performance.

On the other hand,If cobalt or copper prices rise sharply or continuously, it may also cause customers to seek alternatives and reduce demand for cobalt-related products, thereby affecting the company's operating performance.

Although downstream consumers are driving an increase in demand for cobalt, the overall performance of the Hanrui Cobalt industry fluctuates clearly with the price of cobalt. In 2019, the price of cobalt metal fell sharply year on year, and gross margin declined, causing the company's performance to fall to a low point; in 2020, the continued popularity of pure electric vehicles led to a rise in cobalt prices, and the company's performance was able to pick up.It can be seen from this that the past financial performance of the cobalt industry cannot predict future operating results, and the business situation fluctuates greatly with market forces.

3

epilogue

With the rapid increase in shipments of pure electric vehicles and 3C products in the downstream consumer sector, demand for power batteries and 3C batteries has increased dramatically year by year. Benefiting from this, the company's performance may receive some support. However, it is worth noting that the factors affecting the supply and price of cobalt are diverse and complex, and may become hidden risks, which can easily cause uncertainty about the business performance of the cobalt industry.