Due to the low lithium prices and reduced demand from shareholders, overseas lithium supply weakened in 1Q24. But the shift in underwriting models and the lithium market may encourage overseas lithium supply to increase in 2Q. In the product structure, the operating income of 10-30 billion yuan products was 401/1288/60 million yuan respectively.
Finance app, Zhixuan Finance, reported that during 1Q24 the low price and reduced demand from shareholders resulted in overseas lithium mines producing less. However, changes to underwriting models and the lithium market may prompt an increase in overseas lithium supply in 2Q. In the short term, due to weaker downstream production and a higher proportion of long orders, lithium prices may continue to decline. While the surplus in the 24 global market remains unchanged, lithium prices must fall further to achieve supply and demand balance. But the current price has already approached the central price. Lithium mines are the highest quality and most elastic target in the electric vehicle industry chain. Pay attention to opportunities for strategic bottom layout.
Related targets: Qinghai Salt Lake Industry (000792.SZ), Zangge Mining (000408.SZ), Yongxing Special Materials Technology (002756.SZ), Zijin Mining Group (601899.SH), and other related enterprises such as Jiangxi Special Electric Motor (002176.SZ), Tianqi Lithium Corporation (002466.SZ), Ganfeng Lithium (002460.SZ).
Huafu Securities' main points are as follows:
Lithium concentrate production: Reduction in output due to low lithium prices and reduced demand from shareholders.
In Australia, during 1Q24 there were eight active projects producing SC6 concentrate and the output was 730,000 tons, with a YoY change of +0.8%/-13.5%. The reduction in output can be mainly attributed to the low lithium prices and reduced demand from shareholders and the depletion of mines. With reference to the production guidance for FY24 (2H23-1H24), most Australian projects, except Greenbush, have an increase in output. In Africa, most of the projects are China's integrated projects, and the ore will gradually be shipped back to China in the fourth quarter and then be prepared for lithium carbonate. This will be the main driving force for increasing lithium supply in 2024. In Europe and the Americas, the production increases in South American projects are relatively stable, and North American NAL projects are facing challenges due to high prices. Due to the low lithium prices, financing for the Greenfield project is generally difficult.
Lithium concentrate sales: Some of the sales volume in March will be included in 2Q due to shipping issues.
During 1Q24, the low lithium prices affected the sales of Australian mines. However, changes in the pricing method compensated for part of the decrease. The actual sales volume of Australian SC6 lithium concentrate in 1Q24 was 607,000 tons, with a QoQ change of -12.0%/-20.9%. The main reasons for the sales decline were the low lithium prices in January and February, and some sales volume in March will be included in 2Q due to shipping issues. The sales volume of projects with high commercialization can still be increased due to changes in the pricing method. For African projects, most of them are China's integrated projects. There should be no obstacles to selling and allocating them internally, and only costs will be affected. Newly added American lithium mines started to deliver goods for sale in Q3 and sales can continue to be successful due to signing underwriting agreements or actively cooperating with pricing.
The sale price of lithium concentrate continues to decline QoQ due to low lithium prices and M+1 underwriting.
Starting from 2024, except for Talison, which has adopted M-1, most Australian mines have adopted M+1. The mineral price continues to fall as lithium salt price falls, but the decline in this quarter narrowed. Among them, the FOB sales price of Talison concentrate was $1034, down 66% MoM, mainly due to the 23 pricing mechanism being Q-1; the sales price of Cattlin concentrate was $920, up 8% MoM, mainly due to changes in sales; the sales price of PLS (CIF China) concentrate was $927, down 28% MoM, and there was a larger price decline in market sales; the sales price of Marion concentrate was $1048, down 2% MoM. To explore the market attitude this quarter, PLS and AVZ carried out concentrate auctions successively.
The cost curve of Australian mines is expected to move downward.
The capacity utilization rate has an important impact on costs, and major lithium mining projects are still climbing the production capacity. In this quarter, the FOB cost of most Australian mining projects was below $660, considering resource taxes and other fees which added large cost pressures to miners in January and February. Qi in the low lithium prices, companies have not modified their cost guidelines. It is expected that the cost curve will move downward with the rise in production capacity on mine sites. It should be noted that Australian mines are mostly stand-alone mining projects rather than integrated projects. Therefore, it is necessary to consider the allocation of profits in each link, otherwise there may be a risk of production reduction if the lithium prices are low.
Risk Warning: Increased market competition; policy implementation falling short of expectations; slow technology transfer; energy companies investing less in digitalization than expected.