On March 2nd, Shanghai Steel Union released data showing that battery grade lithium carbonate fell by 5000 Yuan perton, with an average price of 382500 Yuan perton. From the peak of nearly 600000 Yuan perton in November last year to the first day of March this year when battery grade lithium carbonate fell below the 400000 Yuan perton mark, in just three months, the price of lithium carbonate has dropped by more than 30% from its highest point.

According to the calculation of Xinlun Lithium Battery, "based on the long-term contract (long-term agreement) lithium concentrate cost, the current cost of lithium carbonate is mostly around 400000 Yuan perton, and the current lithium price has dropped to the long-term agreement cost line."

This makes it difficult for the market to conceal anxiety.

Even Hunan Yuneng (301358. SZ), the leader in the shipment volume of lithium iron phosphate, which has just been launched, has been affected. In response to investors' questions about the order situation, the company's secretary admitted that at the beginning of 2023, the company faced many challenges such as a sharp drop in lithium carbonate prices and a decline in lithium iron phosphate prices.

According to a recent research report by Shouchuang Securities, poor terminal demand is expected to lead to a weakening of lithium salt demand. At present, various manufacturers mainly consume inventory and wait and see. Regarding the future trend, market attitudes are showing differentiation.

Qu Yinfei, a lithium battery analyst at Longzhong Information, pointed out that the impact of cost on lithium salt prices has been weakened, and the demand side is the dominant factor. It is expected that there is still room for a decline in lithium carbonate prices in the future.

Throughout the year, industry insiders are not pessimistic.

Xin Lun lithium battery researcher Qian Yi still maintains her previous judgment. She told 21st Century Economic Report reporters that the supply of lithium carbonate is slightly exceeding demand throughout the year, but there are stages - for example, the first quarter is relatively sluggish, which is already the off-season. In the second quarter, we believe it will rebound, especially in the past few days when favorable policies for new energy vehicles have been continuously spread in the country. The recovery of new energy vehicles is better than expected, while the recovery in foreign countries is faster than in China.

Early drop below 400000 Yuan perton

An important factor that has caused the price of lithium carbonate to plummet is the "lithium ore rebate" plan launched by Ningde Times (300750. SZ), the leader of power batteries, on February 17th.

The core clause of the plan of Ningde Times is that "over the next three years, a portion of the lithium carbonate prices for power batteries will be settled at 200000 Yuan perton. At the same time, the car companies signing this cooperation need to commit about 80% of the battery procurement volume to Ningde Times." It targets customers, including several well selling vehicle companies such as Ideal, NIO, and Jikron, and plans to start implementation in the third quarter.

Previously, Ouyang Minggao, an academician of the CAS Member, a professor of Tsinghua University, and the vice chairman of the Centennial Society, said at the expert media exchange meeting of the China Electric Vehicle Centennial Society Forum that the price of lithium carbonate is expected to return to 350000-400000 Yuan perton in the second half of the year.

And before the first quarter is over, the price of lithium carbonate has already fallen below expectations. Zhang Weixin, an industrial product analyst at CITIC Securities Futures, said that in the long run, a drop in lithium prices to a reasonable range is a high probability event, and the "rebate plan" of Ningde Times only puts time ahead.

Although the market sentiment is unpredictable, the price is still firmly bound to the supply and demand relationship of the market.

In the third quarter of last year, the market was still crying out that it would be normal for the output of lithium carbonate to be lower than expected, and was relatively conservative about the decline in the price of lithium carbonate. In 2023, the market price of lithium carbonate would be hit suddenly. However, in the market's view, the true turning point of supply and demand may occur in 2024.

Ouyang Minggao believes that "the overall balance of supply and demand for the whole year of 2023 may always be surplus in 2024. To ensure the development of the battery recycling industry, it is expected that the reasonable price balance point for lithium in the future will be around 200000 yuan

On the one hand, the market sentiment of lithium carbonate is pessimistic, but on the other hand, the enthusiasm of buying minerals everywhere remains unchanged.

First, Ningde Times launched a restructuring plan of 6.4 billion yuan to compete for Sichuan's "skyrocketing lithium mine" Snowy Mining, and then, China National Lithium Resources (002738. SZ), a "new lithium mine tycoon," made two overseas investments in lithium mines within a month. Recently, the exploration rights of the South Washixia Lithium Mine Exploration Block in Ruoqiang County, Xinjiang were sold for 6.088 billion yuan, with TBEA (600089. SH) and Ningde Times also participating.

However, in the current era of lithium carbonate cooling and lithium mining fever, Tesla CEO Musk reiterated his views on lithium resources on March 1st during the company's Investor Day, stating that "the key limitation in the production of new energy batteries is the capacity to purify lithium elements, not to explore lithium mines."

Positive electrode material profit correction

Another landmark event that affected market sentiment this year was the adjustment of the pricing model of Pilbara Mine (P Mine), the leading lithium mine company in Australia.

On February 20th, P Mining announced that the pricing of the latest 15000 tons of spodumene concentrate for the first quarter of this year will be based on the processing agreement, and its lithium concentrate will be priced based on the price when processed into lithium hydroxide.

From the performance forecast for 2022, it can be seen that the profit distribution of lithium battery positive electrode materials is flowing towards both ends of the industry chain, and mining companies are often able to reap the majority of the profits on the industry chain. The pricing model of "processing fee" is basically adopted for all links of positive electrode materials, except for lithium carbonate, which is beyond the system.

Therefore, P Mine, which was once regarded as a barometer of global lithium concentrate price trends, has also been widely rumored to have become a "OEM" for lithium salt plants due to its new pricing model.

Tianqi Lithium (002466. SZ) and Ganfeng Lithium (002460. SZ), which own their own mines, are absolute "profit kings", with an estimated upper limit of net profit of 25.6 billion yuan and 22 billion yuan, respectively. Shengxin Lithium Energy (002240. SZ), which purchased lithium ore externally, is slightly inferior, with an estimated net profit range of 5.4 billion to 5.8 billion yuan.

The net profit range of Hunan Yuneng, the leader in the shipment volume of lithium iron phosphate, is 2.8 billion to 3.1 billion yuan, while the net profit range of Dangsheng Technology (300073. SZ), which produces ternary cathode materials, is 2.2 billion to 2.3 billion yuan.

As the price of lithium carbonate drops, the profit situation of positive electrode materials is rebounding.

Everbright Securities believes that the positive electrode material companies have basically turned losses into profits, and lithium carbonate inventory is also at a relatively low level. Lithium prices have reached the support line in stages, and it is expected that production output will rebound in April. However, after the release of lithium supply in the second half of the year, the supply-demand contradiction will reappear.

Industry analysts point out that there are significant differences in the costs of lithium carbonate enterprises, with the lowest cost being salt lake lithium extraction. Without considering investment costs, the production cost is only 35000 to 40000 Yuan perton. Secondly, companies such as Tianqi Lithium Industry that own equity mines have lower actual costs than other companies.

This also means that when the price of lithium carbonate drops to 200000 Yuan perton, the salt lake factory can still enjoy good profits, while the method of extracting lithium carbonate through spodumene is difficult to bear due to the production cost price exceeding 300000 Yuan perton.