The Zhitong Finance App learned that Everbright Securities released a research report saying that considering that several well-known Australian mines have stopped production and reduced production since the beginning of 2024, while leading companies in the industry have reported losses in a single quarter, this round of industry clearance may have already begun. At the same time, the ratio of price/cash cost before production stop/production reduction in this round is higher than in the previous round, and mining companies' cash balance is more abundant. This means that companies prefer to take the initiative to cut production ahead of time to raise prices. This will lead to a longer clearance cycle, and the bottom price of lithium carbonate is also expected to be higher than the 70,000-80,000 yuan/ton range estimated by the cost curve. If you look at the arithmetic average, as of April 30, 2024, the PB (LF) of the entire lithium ore sector was 2.38, at the 7.8% quantile since 2019. The sector is entering the bottom range, or is suitable for a gradual increase strategy.

It is recommended to focus on targets on the left side of the cost curve that also have quantitative incremental logic: Salt Lake Co., Ltd. (000792.SZ), Yongxing Materials (002756.SZ), China Mining (002738.SZ), Tibet Mining (000762.SZ), Ganfeng Lithium (002460.SZ), Tianqi Lithium (002466.SZ), etc.

The main views of Everbright Securities are as follows:

This round of lithium mine clearance cycle may have already started

Everbright Securities said that if the first Bald Hill discontinuation project is used as a signal for the last round clearance cycle, the entire last round clearance cycle will last about 15 months from August 2019 to October 2020. If the current cycle uses the discontinuation of production at the first Finniss Australian mine on January 5, 2024, as a signal, other well-known Australian mines Greenbushes and MTCattlin have announced plans to adjust production or sales. At the same time, some A-share lithium mining companies have reported losses for two consecutive quarters, and the current lithium mine clearance cycle may have begun.

Difference between the two rounds 1: The ratio of lithium concentrate price to cash cost before this round of production stop/production reduction is significantly higher

Looking at the first quarter before mine production stop/production reduction in the previous round, the ratio of Bald Hill, Altura, and Cattlin lithium concentrate prices to cash costs was 1.37 times, 0.91 times, and 1.18 times; the ratio of the price of Greenhouse, Finniss, and Cattlin lithium concentrate prices to cash costs in this round was 12.4 times, 1.57 times, and 1.20 times, which was a significant increase over the previous round. Both Bald Hill and Altura in the last round were passive shutdowns after bankruptcy. On the one hand, mining companies' cash and equivalent products were more active than in the previous round; on the other hand, downstream refining stocks were high. For example, Tianqi Lithium revealed that the lithium concentrate inventory in 2023 was 409,000 tons, far higher than 235,000 tons in 2019 and 187,000 tons in 2020. More aggressive production cuts and more cash on the books may make this round's clearance cycle longer than the previous round.

Differences between the two clearance rounds 2: Demand is expected to be stronger in the last round of clearance

The stock price of Ganfeng Lithium began to be reviewed in October 2019. Events such as Europe's strict carbon emission policy in 2019 and the establishment of the Tesla factory in Shanghai have all boosted the market's expectations for rapid growth of new energy vehicles in the next few years. Currently, the NEV penetration rate is already at a high level. According to data from the China Automobile Dealers Association, China's NEV retail penetration rate exceeded 50% for the first time in the first half of April 2024. However, with future promotion in new fields such as energy storage terminals and solid-state batteries, it is still expected to boost demand imagination space.

Differences between the two rounds of clearance 3: The bottom support for lithium prices in this round is higher than the previous round

Unlike the bottom price of lithium carbonate falling to 38,000 yuan/ton in the previous cycle, high-cost supplies such as African mines and lithium mica extraction were added during the current cycle, and marginal costs increased significantly. At the same time, lithium mine costs have also risen due to factors such as declining mine quality and overseas inflation. Since mining companies in this round are more inclined to proactively cut production and raise prices ahead of schedule, the supply release may fall short of expectations. The bottom price of lithium carbonate in this round is also expected to be higher than the 70,000-80,000 yuan/ton range estimated by the cost curve.

Differences between the two rounds of clearance 4: This round of inventory price drop losses had a greater impact on performance

On the one hand, some companies' stocks of lithium salt and lithium concentrate increased at the end of the current cycle compared to the previous cycle; on the other hand, due to a larger drop in raw material concentrate prices and lithium salt prices: the price of lithium concentrate (5%, CIF) in this round fell 5,650 US dollars/ton from January 2023 to February 2024, higher than the 315 US dollars/ton decline in the previous cycle from January 2019 to October 2020; the price of lithium carbonate in this round fell 413,900 yuan/ton from January 2019 to January 2021, higher than January 2019 to January 2019 It fell 39,500 yuan/ton in October 2020.

Risk warning: Domestic and foreign NEV production falls short of expectations, risks of global mine capacity expansion exceeding expectations; related policy regulation and geopolitical risks; the substitution process significantly exceeds expectations; lithium prices fall short of expectations, etc.