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"Water is not produced by us. We are just the carriers of nature," a well-known slogan from Nongfu Spring. However, this statement subtly reveals an essential economic principle: for any industry or company to thrive, it must master upstream resources, as they are crucial for the development of the entire supply chain. The idea that "resources determine success" has become a widely accepted industry consensus.
Recently, the power battery sector has been caught in a fierce "mining war" due to rising raw material prices. New players and established companies alike are aggressively vying for control over critical resources, with competition intensifying rapidly.
So what's driving this mining battle? Who will come out on top?
This article provides a brief analysis of these questions, based on industry insights.
New Players Enter the "Mining War"
According to data, by the end of 2016, China’s lithium salt production capacity was approximately 170,000 tons of lithium carbonate, compared to a global total of 190,000 tons. Lithium hydroxide extraction capacity reached about 45,000 tons, with the rest coming from lithium ore. In 2017, it's estimated that 240,000 tons of lithium carbonate would be used, mostly sourced from lithium ore.
The recent surge in lithium carbonate prices, exceeding 180,000 yuan per ton, has sparked significant concern within the power battery and new energy vehicle industries. Industry analysts suggest that such high prices could lead to gross margins of up to 60–70%, resulting in substantial net profits. For example, Jiangte Electromechanical recently announced it would keep lithium carbonate prices below 70,000 yuan per ton, with a gross profit of 100,000 yuan per ton.
As raw material prices soar, suppliers are reaping the benefits. Leading domestic lithium carbonate producers like Tianqi Lithium and Lifan Lithium have reported impressive first-half results in 2017. Tianqi Lithium saw revenue of 2.115 billion yuan and net profit of 924 million yuan, with a net margin of 43%. Lifan Lithium reported revenue of 1.625 billion yuan and net profit of 607 million yuan, with a net margin of 37%.
Driven by the lure of high profits, new entrants are rushing into the market, hoping to capitalize on the boom.
On July 31, 2017, Zangge Holding announced plans to establish Zangger Lithium Industry Co., Ltd. through its subsidiary Golmud Canggu Potash Co., Ltd., investing no more than 1.4 billion yuan to build a 20,000-ton-per-year lithium carbonate project. Construction is expected to take 18 months.
On October 10, 2017, Sino-Portuguese shares announced plans to acquire 100% of Qinghai Zhongxin Guoan Lianyungang Development Co., Ltd. from Qinghai Zhongxin Guoan Science and Technology Development Co., Ltd. for 2.7 billion yuan. This acquisition gives Sino-Portuguese shares access to valuable salt lake resources and positions them to enter the lithium carbonate industry quickly.
Other companies, including Minmetals Salt Lake, Lanke Lithium, and Lubei Chemical, are also launching their own lithium carbonate projects, expected to start production in 2018. Companies like Dow Technology, Huayou Cobalt, and Yongxing Special Steel are also expanding into upstream lithium-ion resources.
Leading power battery companies like Ningde Era and BYD have already secured upstream resources, demonstrating strategic foresight.
Ningde began establishing a subsidiary, Qinghai Times New Energy, in 2012, planning to invest 7.5 billion yuan to build a 5GWh lithium battery base over 10 years. By 2014, the first 460 MWh line was operational. Huang Shilin, deputy chairman of Ningde, said the location in Qinghai was chosen for its resource and market advantages.
BYD also made significant moves. On October 24, 2016, it announced a joint investment of 500 million yuan with Qinghai Salt Lake Co., Ltd. and Premier Investments to build a 30,000-ton lithium carbonate project. By 2017, the total capacity reached 40,000 tons.
In November 2016, BYD launched a 6,000-ton lithium hexafluorophosphate project in Qinghai, supporting its 10GWh lithium battery initiative. He Long, vice president of BYD, noted that the Xining base was expected to be completed by 2018.
Cross-border acquisitions and aggressive resource enclosures continue unabated.
While many lithium carbonate companies have low profit margins, Tianqi Lithium and Lifan Lithium benefit from owning rich upstream resources, giving them cost and pricing control.
With the shift toward ternary batteries, demand for nickel and cobalt is expected to rise sharply. By 2020, ternary batteries may account for 80% of new energy vehicles, significantly increasing nickel and cobalt consumption.
Most major manufacturers, including BYD and Ningde, are transitioning to ternary batteries. BYD plans to expand its ternary lithium battery production, aiming for 10 GWh in 2016 and adding 3–6 GW in 2017.
Due to the concentration of key minerals overseas and technological limitations in China, overseas mining activities are inevitable.
In 2017, Glencore signed a four-year supply agreement with Ningde, while Assun Technology partnered with CleanTeQ to develop the Syerston project. Tianqi Lithium expanded its lithium hydroxide production, and Junfeng Lithium acquired mines in Argentina and Australia.
In conclusion, controlling upstream resources, integrating supply chains, and overcoming production constraints are now vital for new energy vehicle and battery companies to gain a competitive edge.
In the future, those who can effectively integrate resources will lead the market.