At the beginning of 2023, the lithium mining giant Ganfeng Lithium Industry (01772) kicked off the new year with “a paper profit”.
According to the latest announcement, Ganfeng Lithium expects the net profit attributable to shareholders of listed companies to be 18 billion to 22 billion yuan in 2022, a year-on-year increase of 244.27% to 320.78%.
Not limited to Ganfeng Lithium Industry, benefiting from the surge in demand, upstream lithium mining companies have achieved high performance growth in 2022. Good news-Tianqi Lithium Industry is expected to achieve a net profit of 23.1 billion to 25.6 billion yuan in 2022, a year-on-year An increase of 1011.19%-1131.45%; Yahua Group expects to achieve a net profit of 4.5 billion to 4.7 billion yuan in 2022, a year-on-year increase of about 3.8 times to 4 times.
The reason is that the sharp increase in the performance of these upstream lithium mining companies is not unrelated to the strong growth in demand for lithium salts.
According to the announcement of Ganfeng Lithium Industry, during the reporting period, benefiting from the rapid development of the global new energy industry, the demand for lithium salt from downstream customers has grown strongly, and the sales price of the company’s lithium salt products has increased significantly compared with the same period last year. Coupled with the continuous growth of the power battery and energy storage industry market, the production and sales of the lithium battery sector have increased significantly, so the company’s operating performance has increased year-on-year.
However, what deviates from the soaring performance is the company’s sharply weakened stock price: as of the close of January 30, Ganfeng Lithium’s H shares fell by more than 5%, reported at 72.3 Hong Kong dollars. Looking at the long-term perspective, its stock price has fallen by more than 30% throughout 2022, and the gap from the previous highest price of 185 Hong Kong dollars is getting wider and wider.
According to Morgan Stanley’s forecast, the decline in Ganfeng Lithium’s stock price seems to be another mystery. Morgan Stanley said that the performance of Ganfeng Lithium Industry means that the recurring net profit in the fourth quarter of last year reached 3.5 billion to 7.5 billion yuan, and the midpoint (5.5 billion yuan) was slightly lower than the bank’s forecast, while its implicit The scope is also quite wide.
Then, further exploring from an industry perspective, what is the reason for the soaring performance of Ganfeng Lithium Industry? How will it affect its performance and stock price trend in the future?
High lithium prices flash “turning point”?
The Zhitong Finance APP has observed that the performance of lithium mining companies has soared in the past one or two years, mainly due to the tense state of “surge in demand and insufficient supply” of lithium salts.
It is reported that domestic demand for lithium carbonate mainly includes power batteries, consumer batteries, energy storage batteries and industrial applications. If further subdivided, it can be divided into automotive power batteries, lithium iron phosphate, ternary materials, 3C digital batteries and Energy storage batteries, etc. New energy vehicle batteries are the most important engine for the growth of downstream consumption of lithium carbonate, and lithium iron carbonate and ternary materials are indispensable materials for the positive electrode materials of new energy vehicle power batteries, so the production and sales of new energy vehicles have a strong demand for domestic lithium carbonate have a very obvious impact.
From the demand side, with the support of multiple factors such as policy and capital, domestic new energy vehicles still show a strong growth trend, which also promotes the rapid increase in demand for lithium carbonate.
According to the data disclosed by the Ministry of Industry and Information Technology, the production and sales of new energy vehicles in my country will be 7.058 million and 6.887 million in 2022, a year-on-year increase of 96.9% and 93.4% respectively, ranking first in the world for eight consecutive years. The strong growth of the new energy vehicle market has greatly increased the demand for lithium carbonate—relevant research report data show that the apparent consumption of lithium carbonate in my country has grown rapidly in the past two years, and the year-on-year growth rate in 2020 and 2021 will be 21.64% and 46.12%.
From the perspective of the supply side, due to the high concentration of lithium mines in the world, which are mainly concentrated in Australia, South America and other regions, coupled with the low capacity utilization rate of domestic carbon dioxide production enterprises, the current lithium mine industry as a whole is in a situation where output growth cannot keep up with demand growth. a state.
Specifically, global lithium resources are dominated by Australian mines and South American salt lakes. Australian spodumene mines are still the main source of lithium salts in the world. In 2021, it is estimated that Australian mines and South American salt lakes will account for about 87% of the global supply of lithium carbonate. . At the same time, due to the limitation of resources and production technology of domestic carbonic acid production enterprises, the utilization rate of production capacity is low, and the growth of output still cannot keep up with the growth of demand. In the context of the development of short supply, the domestic price of lithium carbonate will naturally continue to rise.
It is reported that in 2022, the overall price of lithium carbonate will still show a sharp rise throughout the year. As of December 31, 2022, the domestic mixed average price of industrial grade lithium carbonate is 504,000 yuan/ton, an increase of 89.47% compared with the average price of 266,000 yuan/ton on January 1, 2022. On December 31, 2022, the domestic mixed average price of battery-grade lithium carbonate was 525,000 yuan/ton, an increase of 86.17% compared with the average price of 282,000 yuan/ton on January 1, 2022.
However, it should be noted that since December 2022, lithium prices have begun to show a downward trend. As of January 29 this year, the market price of industrial-grade lithium carbonate has dropped to 447,500 yuan/ton, a decrease of about 21.5% compared with 570,000 yuan/ton on November 29 last year. Regarding the reasons for the drop in lithium prices, the market generally believes that it is related to the “off-season effect” and “marginal release of production capacity”.
Taking a closer look, the current market has a different view on the recent drop in lithium prices.
Huaxi Securities believes that there is still a certain amount of lithium carbonate inventory in the downstream. Due to factors such as the off-season of consumption, the overall purchasing enthusiasm of downstream manufacturers is not high, and the price of lithium salt may continue to drop. The fluctuation of lithium salt price this time belongs to the normal fluctuation accompanying the industry’s off-peak season, not an “inflection point”. In the context of delays in the production of many upstream projects and the slow release of lithium resource supply, the price of lithium salt is expected to remain high for a long period of time.
Zheshang Securities, by combing the new supply and demand of lithium resources in each quarter of 2023, concluded that supply and demand will remain tight in the first half of the year, and may usher in excess supply in the second half of the year. The agency predicts that the marginal supply of lithium resources will exceed demand or appear in the second half of 2023.
Combined with the latest supply and demand performance, the duration of lithium supply and demand mismatch may exceed market expectations, which means that lithium prices still have a safety period of at least 5 months, and lithium prices under the huge expected difference are expected to drive the recovery of the sector.
Guotai Junan pointed out that on the supply side, the new production capacity of Australian mines and domestic salt lakes is lower than expected, at least until mid-May, and the supply is still rigid; on the demand side, Tesla started a price war for electric cars, especially in January. The order volume doubled the production capacity , other car companies are also following up one after another. Car companies’ early price wars may lead to pre-emptive demand, while cathode material factories have insufficient stock due to low expectations for demand a few years ago. Front-end terminal demand may lead to centralized stock replenishment by material factories brought about a surge in demand.
Based on the above, the motivation for lithium prices to maintain a high level is still relatively sufficient, and this may also play a certain role in supporting the continued upward performance of upstream lithium mining companies.
Integrated “eating” industry dividends
Zhitong Finance APP learned that Ganfeng Lithium Industry is the only leading lithium enterprise in China that deploys lithium extraction from brine, lithium extraction from spodumene, and lithium extraction from mica. Its business runs through the complete industrial chain of lithium mines, lithium salts, lithium batteries and recycling.
Specifically, on the upstream side, Ganfeng Lithium has controlled a number of high-quality lithium ore resources in Australia, Argentina, Ireland, Mexico, Mali, Qinghai, Jiangxi and other places in my country through the global layout of lithium ore resources. In the midstream, the company’s main products include battery-grade lithium hydroxide, battery-grade lithium carbonate, lithium chloride, lithium fluoride, etc., and the production capacity of lithium metal products ranks first in the world. Downstream, the company mostly uses negative electrode materials, positive electrode materials and electrolytes purchased from customers in the lithium compound business segment to produce lithium-ion batteries.
It is worth mentioning that, in order to seize the development benefits brought by the fast-growing new energy automobile industry, Ganfeng Lithium has further opened up business growth space by strengthening the vertical integration strategy.
On the one hand, the company continues to increase resource control and promote the pace of resource construction. It is reported that Ganfeng Lithium owns four lithium resources of spodumene, salt lake, lithium clay and lepidolite at the same time, and continues to increase its equity control over resources. At present, the company holds 100% equity of Bacanora Company and Sonora Lithium Clay (8.82 million tons of LCE resources) project; the company completed the delivery of Mali Goulamina spodumene (3.8797 million tons of LCE resources) project and obtained 50% of the equity of Mali Lithium Industry ;In addition, the company obtained a 62% stake in the Shangrao Songshugang tantalum-niobium mine (1.49 million tons of LCE resources) project through Xinyu Ganfeng Mining.
On the other hand, the company’s expansion progress remains unabated, and the Cauchari-Olaroz Salt Lake is expected to be put into production in 2022. At present, the production capacity of lithium carbonate, lithium hydroxide and lithium metal of Ganfeng Lithium Industry is 26,000 tons, 81,000 tons, and 2,150 tons respectively, and the production capacity of high-purity lithium carbonate and lithium chloride totals 19,500 tons. However, Ganfeng Lithium is still actively promoting the construction of lithium salt projects. For example, the Cauchari-Olaroz lithium salt lake project with an annual output of 40,000 tons of lithium carbonate has started single-module commissioning in August, and is expected to gradually release production capacity from the end of 2022 to the first half of 2023 .
In addition, relying on the advantages of lithium resources, Ganfeng Lithium Industry continues to extend its lithium battery business layout vertically, and is expected to rank among the first echelons of the global lithium battery industry by virtue of its integration advantages. Specifically, the company plans to invest another 20.3 billion yuan in the construction of a 6GWh new lithium battery project, a project with an annual output of 2 billion small polymer lithium batteries, and a project to increase the production capacity of Ganfeng Lithium’s new lithium battery to 30GWh. At the same time, in terms of technological achievements, Ganfeng Lithium Industry has formed a certain leading edge in lithium iron phosphate battery system technology, high-voltage platform polymer fast charging technology, etc., which will further promote the company’s future integration advantages and mature and cutting-edge technology. The first echelon of the battery industry.
Compared with its performance in the past two years, Ganfeng Lithium Industry can also be said to be eating industry dividends by virtue of its integrated layout. Since 2020, the company’s performance has begun to explode strongly. The growth rate reached 184.22% and 409.69% respectively.
Now, the company’s performance may continue to achieve high growth with the benefit of lithium salt prices maintaining a high level and sufficient operating momentum. In view of this, many research institutions also maintain optimistic suggestions on it. Among them, Cinda Securities pointed out that considering the progress of the company’s lithium salt and lithium resources projects and the expansion of lithium battery production, while the downstream new energy vehicle field continues to thrive, it maintains its “buy” rating on the company. And reflected in the stock price level, since the stock price has continued to fall since September 2021, the valuation has also been brought back to a more reasonable range.