Which Corporate Giant will Win The "Mine Battle" of the Power Battery Industry?



Which Corporate Giant will Win The "Mine Battle" of the Power Battery Industry?

Recently, the "mine battle" of the power battery industry triggered by the rising prices of raw materials is in full swing. In addition to existing players, new capital players have come in a continuous stream, further intensifying the battle.

So, what are the reasons behind the "mine battle"? Who will win?

Data shows that at the end of 2016, China's lithium salt production capacity was equivalent to about 170,000 tons of lithium carbonate, and the world's total capacity was 190,000 tons, where the capacity of lithium extracted from brine was about 45,000 tons and the remaining lithium capacity was extracted from ores. 240,000 tons of lithium carbonate are expected to be used in 2017, which will be basically extracted from lithium ores.

Recently, the price of lithium carbonate breaking RMB 180,000 yuan / ton has drawn the attention of the power battery industry and even the whole new energy vehicle industry. Industry insiders analyzed that given the high price, the gross profit margin of lithium carbonate may reach 60%-70% and the net profit will naturally be very impressive. But not long ago, Jiangte Motor announced that the company's lithium carbonate price will be controlled below RMB 70,000, and the gross profit per ton will reach RMB 100,000.

In fact, this has also been evidenced in the first-half financial reports of domestic leading suppliers of lithium carbonate - Tianqi Lithium and Ganfeng Lithium. In the first half of the year, Tianqi Lithium generated a revenue of RMB 2.115 billion and a net profit of RMB 924 million with a net profit rate of 43%; Ganfeng Lithium generated a revenue of RMB 1.625 billion and a net profit of RMB 607 million with a net profit rate of 37%. The spectacular growth really makes people jealous.

Driven by the attractive profits, an array of new players have recently entered the market, hoping to make a fat profit, or at least get a share.

On the night of July 31, 2017, Zangge Holding announced that the company's wholly-owned subsidiary Golmud Zangge Potash Fertilizer Co., Ltd. plans to set up Zangge Lithium Industries Co., Ltd., which will invest no more than RMB 1.4 billion in establishing a 20,000-ton lithium carbonate project with an expected construction period of 18 months.

On October 10, 2017, CITIC Guoan Wine announced that the company plans to purchase Qinghai CITIC Guoan Technology Development Co., Ltd.'s 100% equity in Qinghai CITIC Guoan Lithium Development Co., Ltd. through non-public offering of stocks at an expected price of about RMB 2.7 billion. In this transaction, what matters to CITIC Guoan Wine is the Saline Lake lithium resources, which will give the company a unique advantage in developing lithium carbonate business. CITIC Guoan Wine believed that lithium carbonate holds great development potential and that the acquisition of Guoan Lithium will help the company quickly enter the battery-grade lithium carbonate production industry and enhance the company's asset quality and profitability.

Apart from the above-mentioned enterprises, Minmetals Saline Lake, Lanke Lithium and Lubei Chemical have also launched their own lithium carbonate projects, which are expected to be put into operation in 2018. And enterprises including Dowstone Technology, Huayou Cobalt, Yongxing Special Steel and Optimum Nano are eyeing the upstream lithium ore industry to pave the way for the development of lithium carbonate business.

As the world's leading power battery enterprises, CATL and BYD have established a presence in the upstream resources industry at an earlier time, fully demonstrating benchmark enterprises' forward-looking ideas and advanced strategic thinking.

As early as 2012, CATL set up a subsidiary CATL-QH in Xining and planned to invest RMB 7.5 billion in establishing a power lithium battery, and energy storage lithium battery project base with an annual capacity of 5GWh, which would be completed in three phases over a span of 10 years. In January 2014, the first 460MWh production line of the project Phase I was officially put into operation. CATL's Vice Chairman Huang Shilin said: "The resources and market advantages of Qinghai are the reasons why CATL has established a power battery and energy storage battery base here."

On October 24, 2016, BYD announced that it would join with Qinghai Salt Lake and Excellence Investment to invest RMB 500 million in upstream raw material lithium carbonate projects and a 10,000-ton lithium carbonate project. Meanwhile, Qinghai Salt Lake promised to transfer its 51.42% equity in Lanke Lithium to the joint venture. The total capacity will reach 40,000 tons by the end of 2017.

On October 29, 2016, Qinghai BYD's 10GWh power lithium battery project, and 20,000-ton power battery materials production and recycling project started in Xining. BYD's CTO Liu Weiping said, "The 10GWh Qinghai power lithium battery project Phase I is expected to be put into operation in the second half of 2017.The project can produce lithium iron phosphate batteries and ternary batteries. The actual production and product ratio will change with market demand."

In November 2016, BYD's 6000-ton lithium hexafluorophosphate supporting project settled in Xining, Qinghai. The project is a supporting project of BYD's 10GWH lithium battery project in Qinghai. The project will be implemented in three phases with a total investment of RMB 100 million.

BYD's Vice President He Long said recently, "BYD's Xining base was inaugurated at the end of 2016. The plant is expected to be completed by the end of 2017. It will be officially put into production in June 2018."

In fact, observation and analysis show the revenue and profit margin of pure lithium carbonate enterprises are generally not high. For example, in the first half of 2017, Yahua Group recorded a revenue of RMB 1.028 billion and a net profit of RMB 127 million with a net profit rate of only 12%; Ronghui Lithium generated a revenue of RMB 377 million and a net profit of RMB 92 million with a net profit rate of 24.4%.

And the reason why the revenue and gross margin rate of Tianqi Lithium and Ganfeng Lithium are far higher than other lithium carbonate enterprises is that the two companies boast rich upstream lithium resources, and have an absolute say in the upstream lithium sector, which is conducive to cost and price control.

Especially noteworthy is that as the development trend of the power battery technology roadmap is changing, it has become increasingly obvious that the ternary battery market will usher in a period of explosive growth.

According to the national technology roadmap plan for domestic power batteries, by 2020, the annual new energy vehicle production and sales reached 2 million units, and the specific energy of power batteries will exceed 300 Wh / kg. The plan proposes that efforts shall be made to achieve a specific energy of 350 Wh / kg, a system specific energy of 260 Wh / kg and a cost of lower than RMB 1 /Wh.

Due to the characteristics of cathode materials, the energy density of lithium iron phosphate batteries is already close to its theoretical value and difficult to achieve the planned target. But high-nickel ternary batteries can fulfill the task. The industry predicated that in the next 2-3 years, the demand for ternary power batteries will increase significantly.

According to the data of the Cobalt Branch of the China Nonferrous Metals Industry Association, ternary power batteries account for 50% of new energy vehicles in China in 2017, promoting 11,200 tons of nickel consumption and 4,800 tons of cobalt consumption. It's expected that by 2020, ternary power batteries will account for 80% of new energy vehicles in China, promoting 67,000 tons of nickel consumption and 19,000 tons of cobalt consumption.

At present, the mainstream lithium iron phosphate battery manufacturers including BYD, CATL, Guoxuan High-Tech and Optimum Nano are shifting their focus to ternary batteries. At the end of 2016, BYD's Board Secretary Li Qian disclosed publicly, "BYD will expand market presence of ternary lithium batteries in the future. BYD expected 10GWh batteries in 2016 and will increase 5-6GWh ternary batteries in 2017."

With the transition of ternary batteries from unpopularity in 2016 to popularity, the industry chain's dependence on mineral resources such as nickel, cobalt and lithium has been strengthened. But, these three mineral resources are mostly concentrated overseas and more than 50% of these resources depend on imports. Especially in 2017 when multiple nickel mines have been shut down in the Philippines, the nickel production has dropped, widening the market gap. Meanwhile, despite abundant lithium resources in China, domestic lithium extraction technology hasn't significantly progressed as no major breakthroughs have been made. The existing domestic capacity cannot fill the gap in the power battery market. In short, domestic nickel, cobalt and lithium resources are slightly inferior to overseas products in technology, cost and quality.

In early July 2017, a report pointed out that the mining giant Glencore and CATL have signed a major agreement, in which the former will sell 20,000 tons of cobalt products to the latter. Previously in October 2016, Glencore signed a four-year supply agreement with CATL. Some industry insiders believed that Glencore, Volkswagen and CATL will create a triangular transaction pattern, where Glencore sells 20,000 tons of cobalt products to CATL, while Volkswagen will purchase batteries from CATL.

On August 30, 2017, Easpring Material Technology and signed the Product Purchase Agreement with Scandium21 Pty Ltd, a wholly-owned subsidiary of the Australian Stock Exchange-listed Clean TeQ Holdings Limited. According to the agreement, the two sides will carry out product purchase cooperation in the Syerston project.

On June 20, 2017, Tianqi Lithium announced that the company intends to re-expand battery-grade lithium hydroxide capacity by launching the Phase II 24,000-ton battery-grade lithium hydroxide monohydrate project with an estimated investment of no more than AUD 317 million (about RMB 1.626 million) and a construction period of 22 months. Currently, Tianqi Lithium has four major mines including Talison's Greenbushes mine (51% equity), Salares Saline Lake, Shigatse Zabuye mine and Cuola Spodumene mine, with resources ranking first in China.

Ganfeng Lithium also has four mines including the domestic Heyuan spodumene mine, the Argentina Mariana brine mine, the Irish Blackstairs mine and the Australian Mont Marion mine. In May 2017, Ganfeng Lithium agreed to invest in the lithium development projects of Pilbara Minerals. Meanwhile, Ganfeng Lithium has established a presence in the United States by investing in overseas lithium projects there.

According to an announcement of Easpring Material Technology, the Syerston project is one of the high-grade nickel cobalt mines in the world and the mine has rich scandium and manganese resources. The project, located in the west of Sydney, Australia, has gained approval for the development of resources, and environment, water and other licenses. Clean TeQ holds 100% interest in the Syerston project.

To sum up, OFweek believed extending the industrial chain, controlling the stable, high-quality upstream resources, breaking capacity and raw material limits and enhancing core competitive advantages has become an inevitable way for enterprises along the new energy vehicle and power battery industry chain to expand capacity, reduce cost, improve quality, win the market and gain discourse power.

In the future, enterprises or institutions specializing in integrating resources will win, and continue to lead the market.