Lithium: Lithium prices are expected to remain high for a long time. We are optimistic about the recovery of sector valuations in the future and are optimistic about the high demand for lithium hydroxide brought about by the increased volume of large cylindrical batteries. The ov

(Report Producer/Author: Minsheng Securities, Qiu Zuxue, Zhang Hang, Zhang Yiqing)

Outlook for 2022: Under a steeper growth curve, optimistic about resource-side premiums

Lithium: Lithium prices are expected to remain high for a long time, optimistic about future sector valuations Value restoration, optimistic about the increase in demand for lithium hydroxide brought about by the increase in large cylindrical batteries. From the supply side, the overall supply increase in 2022 has been determined, and global lithium resources are mostly locked in long-term orders. Global high-quality lithium raw materials are expected to remain scarce. At the same time, the auction price of lithium concentrate has hit a record high, and the profits of the industry chain are quickly transferred to the upstream. We are optimistic about enterprises that integrate upstream and downstream. Looking to the future, considering the active expansion plans and supply guarantee requirements of battery factories and midstream cathode material companies, existing capital expenditures in the upstream are difficult to meet supply in a timely manner. The price of lithium concentrate is expected to continue to break new highs, and the price of lithium salt is expected to continue to rise. Lithium prices are expected to exit the bull market. At the same time, from the demand side, large cylindrical batteries are about to increase in volume, and the demand for lithium hydroxide is expected to increase significantly in the future.

Cobalt: Supply-side disturbances are expected to marginally weaken the push for price increases, but will form support for prices. In the short term, the price center of cobalt has fallen due to pressure on demand. However, we believe that with the peak season of consumer electronics in the second half of the year and the decline in ternary battery costs caused by the decline in cobalt prices, the price center of cobalt is expected to stabilize under high demand elasticity. We are optimistic about the irreplaceability of cobalt in consumer electronics and ternary batteries, and the demand for cobalt is still expected to grow in the long term in the future.

From the perspective of nickel supply and demand, Indonesia ferronickel will continue to be put into production in large quantities in the second half of the year, while the demand for stainless steel is growing slowly, and the excess pressure on ferronickel is increasing; the production capacity of high matte nickel and wet intermediate products is nearing completion, and new production capacity is expected to be put into operation in the late third quarter. , the subsequent supply pressure may be relieved. On the demand side, with the application of large batteries and the recovery of demand for new energy vehicles, the demand for nickel sulfate will strengthen. The proportion of nickel sulfate using electrolytic nickel may increase. The supply and demand of nickel sulfate will still be It's a bit tight, and we still have to wait for the turning point. In terms of nickel prices, the Federal Reserve raised interest rates , and the market sentiment was weak, which suppressed nickel prices. From a fundamental point of view, we believe that although the structural contradictions of nickel products have been alleviated, they are still being interpreted, and price differences are still high. New energy The automotive market is recovering and high nickelization is accelerating, and the demand for nickel sulfate is strengthening. However, the production capacity of high nickel matte and wet process intermediates, as well as high nickel matte to nickel sulfate, may be difficult to match the growth rate of demand. The gap may still be there. We need to wait patiently for the turning point of nickel prices. It is expected that an inflection point may occur in the latter part of the fourth quarter.

Rare earth: Supply and demand in the rare earth industry are booming, and prices are expected to remain high. Supply side: Domestic rare earth quotas are steadily increasing based on demand, and overseas mines are unlikely to increase in the short term. In order to match the increasing demand, the growth rate of domestic indicators for the second batch of 2021 and the first batch of 2022 has both maintained a rapid growth of 20%. It is expected that the future growth rate of rare earth mining and separation indicators may maintain a central growth rate of 20%. Demand side: New energy vehicles + energy-saving motors lead the way, and demand is blooming. Driven by the dual-carbon policy, the use of more energy-saving rare earth permanent magnet motors is the general trend. New energy vehicles and energy-saving motors are ushering in a golden period of rapid development, which will greatly boost the demand for rare earth magnetic materials. We estimate that the global praseodymium and neodymium oxide supply and demand gap will reach 6,767 tons in 2022, with a supply and demand gap ratio of 8.3%.

Lithium: The price center is expected to remain high for a long time, optimistic about the high demand for lithium hydroxide

2.1 Supply: The overall increase in 2022 has been determined, and resource-side premiums are highlighted

2.1.1 2022Q1 Review: Low expectations for lithium resource volume, and the prelude to rising overseas lithium prices Open

Looking back at 2022Q1, even though the global supply of lithium resources is tight and prices are high, the volume of overseas lithium resources is still lower than expected. Both Western Australia lithium mines and South American salt lakes have experienced varying degrees of decline in production and sales, making the supply of lithium resources increasingly tight this year.

Western Australia lithium mine: Technical reform, labor shortages, and the epidemic have affected production, and sales have declined month-on-month. (1) Production and sales volume: In 2022Q1, Western Australia's active mines produced a total of 500,000 tons of lithium concentrate, which was basically the same as the previous quarter; the total sales of lithium concentrate were 480,000 tons (assuming Greenbushes production and sales rate 100%), a decrease of 13.6% from the previous quarter.(2) Reason: There is a shortage of labor in Western Australia under the control of the Australian epidemic. At the same time, the epidemic has also caused delays in shipments. In addition, the mining recovery rate of the resumed production project is lower than expected, and the progress of the technical transformation project is not as expected, which also affects production. The quarter-on-quarter decline in sales was affected by the delayed shipment of 20,000 tons of lithium concentrate from PLS. This part of the sales will be confirmed in the second quarter. Excluding this part of the impact, the sales volume in the second quarter was flat quarter-on-quarter.

Salt Lake, South America: Production and sales are divided, and the impact of the epidemic still exists. The output of South American Salt Lake fluctuated in 2022Q1. The production and sales of Albemarle and SQM increased, while the production and sales of Olaroz, a subsidiary of Livent and Allkem, fell slightly. Among them, Olaroz Salt Lake's 2022Q1 lithium carbonate production was 2,972 tons, a decrease of 18% from the previous month, and sales were 3,157 tons (44% were battery grade), a decrease of 4% from the previous quarter. The impact of the epidemic on production still exists, and Olaroz Salt Lake, as an emerging salt lake in production, has experienced The ramp has still not reached the designed production capacity, and the increase in volume is still lower than expected.

The rise in overseas lithium prices has begun, and the global price center has risen. Subject to long-term fixed-price orders for many years, overseas lithium prices have stagnated during this round of rising lithium salt prices in China, and there is a large gap with China's domestic lithium salt prices. However, with the re-signing of long-term contracts starting in 2022, overseas lithium prices began to rise sharply. At the same time, the price of lithium mines in Western Australia has also risen sharply, and overall costs have supported the high global lithium prices.

The selling prices of salt lakes in production in South America increased significantly in 22Q1, and the contract structure was optimized. In 22Q1, the selling price of Albemarle lithium products increased by 66% year-on-year. The selling price of SQM lithium salt rose sharply to US$38,000/ton. The selling price increased by 567% year-on-year and 160% month-on-month. The Q1 average sales price of the Olaroz project was US$27,000/ton, month-on-month. up 118%. From the perspective of the proportion of long-term and short-term orders, each company has adjusted its sales contract structure since 22Q1, reducing the proportion of fixed-price long-term orders, the proportion of spot pricing contracts has increased significantly, and the pricing cycle has been shortened, making the average selling price closer to the market price. Therefore, each company has significantly Raise the full-year lithium salt sales price guidance.

Western Australia lithium mine: Lithium concentrate prices rose sharply in 22Q1 month-on-month. Among them, the average price of Mt Marion spodumene was US$1,952/dry ton, an increase of 69% from the previous month. The average sales price of Pilbara was US$2,650/ton, an increase of 49% from the previous month. Greenbushes sales The average price was US$1,770/ton, a month-on-month increase of 199%. In terms of price guidance, Mt Cattlin's long-term agreement price guidance is US$5,000/ton CIF. Starting from 22Q2, the long-term agreement price of lithium concentrate will continue to rise, which is expected to support the central high of lithium prices from costs.

2.1.2 Outlook: The overall increase in 2022 has been determined, and supply release is limited

New production capacity on the resource side in 2022 will be limited and concentrated, mainly from the expansion of mature brownfield projects. From a current perspective, Western Australia lithium mines (Altura production capacity resumption, Greenbushes production capacity ramping, Wodgina production resumption) and production capacity launches in South American salt lakes (SQM, etc.) still constitute the clearest supply increase. We estimate that global lithium resource production will increase by approximately 230,000 tons to 830,000 tons LCE in 2022, of which the production of lithium from ores will increase by approximately 135,000 tons LCE, and the production of lithium from salt lakes will increase by approximately 87,000 tons LCE, except for the Cauchari-Olaroz project In addition, almost all of the production growth in 2022 will come from capacity expansion in brownfield projects.

In terms of Australian mining, the main increases in 2022 will come from the ramp-up of Greenbushes production capacity, the expansion of Mt Marion, the resumption of production at Pilbara's Ngungaju factory and the resumption of production at Wodgina. Ngungaju plans to have an annual production capacity of 180,000-200,000 dry tons by mid-2022, but it will all be sold through auctions, which is expected to push up the price of lithium concentrate. Wodgina's resumption of production mainly supplies Albemarle's own factories and does not sell to external parties, so it has limited impact on the market. Currently, there are only 4 mines in production in Australia: Greenbushes, Mt Cattlin, MT Marion, and Pilgangoora. Among them, the production capacity of Greenbushes is still locked by Tianqi Lithium and ALB, and MT Marion is mainly supplied to shareholders MIN and Ganfeng Lithium . Only some lithium concentrates from Mt Cattlin and PiLGangoora are supplied to the spot market, and the spot supply of lithium concentrates will continue to be tight.

2) In terms of Salt Lake, the main increase in 2022 will come from overseas, and the new production capacity may be concentrated before the end of 2022, but attention must be paid to the progress of the ramp-up.The total new salt lake production capacity that year totaled 176,000 tons of LCE, mainly including SQM's expansion of 60,000 tons of lithium carbonate, ALB's expansion of 40,000 tons of lithium carbonate, and the commissioning of the first phase of the CauchariOlaroz project of 40,000 tons of lithium carbonate. Taking into account factors such as production capacity ramping, , the supply side of lithium extraction from salt lakes may continue to be tense in 2022.

2.1.3 Industrial chain profit distribution: Resource-side premiums have increased

Since 2021, lithium resource premiums have risen sharply, and lithium concentrate prices have risen rapidly. Looking back from 2021 to the present, the two quarters with the fastest quarter-on-quarter growth in the long-term contract price of lithium concentrate in Western Australia were 2021Q4, 2022Q1 and 2022Q2. The long-term contract price of lithium concentrate was US$1,600-1,800/ton and US$2,500-3,000/ton respectively. and 5,000 US dollars/ton. The main reasons are: (1) The price of lithium salt is rising rapidly, and the profits of lithium smelting and processing enterprises are growing rapidly. (2) The Pilbara launches lithium concentrate auction to gradually bring the price of lithium concentrate into line with the actual market supply and demand. However, the overall growth rate of Australian lithium concentrates lags behind domestic lithium salts by one quarter. Due to the time difference, domestic lithium salt processing plants are left with huge profits. According to Asian Metal , the average CIF price of spodumene (Li2O 6%min) in China in 2022Q1 was US$2,716/ton, and the long-term price of spodumene in 2022Q2 was US$5,000/ton, with a month-on-month increase of 84.1%. But overall, smelting profits are still huge, and the price of lithium concentrate will most likely continue to rise in the future, with the lithium resource side rising significantly.

Distribution of upstream and downstream profits: The rapid rise in lithium concentrate prices in 22Q2 may lead to a rapid rise in lithium salt production costs, and the lithium resource premium has risen sharply, highlighting its importance. (1) Looking back at the lithium market since 2021Q1, with the sharp rise in lithium salt prices, the overall profits of the lithium smelting end and the lithium resource end have increased significantly, but the increase is not the same. According to data from Asian Metal, we estimate the gross profit of lithium carbonate in 2021Q1 About 19,000 yuan/ton, the gross profit of a single ton of LCE lithium concentrate is about 3,000 yuan; in 2022Q1, the gross profit of lithium carbonate rose sharply to about 236,000 yuan/ton, and the gross profit of a single ton of LCE lithium concentrate rose sharply to about 136,000 yuan ; (2) 2022Q2: If converted into the cost of lithium carbonate, we estimate that under the long-term price of lithium concentrate of US$5,000/ton, the production cost of lithium carbonate will rapidly rise to more than approximately 320,000 yuan/ton, and the profit of the lithium smelting process Lowering the margin will accelerate the transfer of profits to lithium resources. We expect that the gross profit of lithium carbonate will decline to about 160,000 yuan/ton in 22Q2 from the previous quarter, and the gross profit of a single ton of LCE lithium concentrate will continue to rise sharply to about 270,000 yuan. The premium of lithium resources will rise sharply and its importance will become more prominent.

future interpretation: It is expected that the premium of lithium resources will continue to rise marginally, and we are optimistic about upstream and downstream integrated enterprises. (1) Looking back at the profit distribution between resources and smelting since the sharp rise in lithium prices in 2021Q1, we found that the gross profit ratio of the lithium resource side has increased significantly, which also confirms the objective background that lithium resources are more scarce than the lithium smelting link: According to Asian Metal Based on the data, we calculated that the gross profit of lithium carbonate smelting accounted for 89% in 2021Q1, while the gross profit of lithium resources accounted for 11%. Since then, with the increase in the long-term contract price of lithium concentrate and the progress of lithium concentrate auctions, lithium resources have The gross profit proportion of the terminal has increased to 58% in 2021Q4. However, due to downstream supply and demand reasons, lithium salt prices rose sharply in 2022Q1, and the increase exceeded the increase in lithium concentrate prices, causing the gross profit ratio of the lithium resource side to briefly fall back to about 37% in 2022Q1. We believe that in the context of continued tension in lithium resources, there is a high probability that profits in the industry chain will continue to shift to upstream resources in the future. (2) Future interpretation: We believe that the reasonable profit distribution between lithium resources and lithium smelting in the future may be 8:2. If calculated based on this, even at the current lithium salt price, the price of lithium concentrate will continue to rise to US$6,000-7,000 in the future. The high level of more than / ton is also within a reasonable range. We believe that the premium on the lithium resource side will continue to rise marginally in the future, and the profits on the lithium smelting side may be further compressed. Only the integrated enterprise of lithium resources and smelting can continue to enjoy the benefits in the future. High profits.

2.2 Demand: The growth curve is still steep, and we are optimistic about the high demand for lithium hydroxide in the future.

2.2.1 Driven by power batteries + energy storage, lithium will usher in greater demand growth in the future.

Carbon neutrality promotes the reshaping of the global energy system. The electrification of power generation and transportation fields is the first to bear the brunt, corresponding to the high demand for energy storage and new energy vehicles. Among global greenhouse gas emissions, transportation is the second largest emission sector after power generation and heating, among which land transportation accounts for the largest proportion of emissions. Therefore, the electrification of passenger cars, buses, special vehicles, and heavy trucks is a key step towards carbon neutrality. According to IEA and ICCT statistics, taking 2018 data as a sample, 74.5% of global carbon dioxide emissions are from land vehicle transportation, of which 45.1% comes from passenger transport (such as passenger cars, buses, motorcycles, etc.), and 29.4% comes from freight. (such as heavy trucks); 11.6% are aviation emissions; 10.6% are shipping emissions; about 1% are railway transportation emissions; and the remaining 2.2% are pipeline transportation emissions of oil, natural gas, fresh water, and steam. According to the global carbon neutrality roadmap released by the IEA, the proportion of global photovoltaic and wind power needs to increase from about 10% to 70% from 2020 to 2050 (supporting the proportion of renewable energy rising to 90%). At the same time, the global pure The sales penetration rate of electric, plug-in hybrid and hydrogen fuel vehicles needs to be increased from 5% to 100%.

midstream production is rapidly expanding, and the amplifier effect is helping demand continue to increase. According to Xinchen Information statistics, the expansion of lithium iron phosphate cathode production is particularly aggressive. The production capacity of lithium iron phosphate increased from 181,200 tons at the end of 2018 to 898,000 tons at the end of 2021, with a compound annual growth rate of 70.5%. The year-on-year growth rate in 2021 will be even higher. It is as high as 167.9%. Compared with previous years, lithium iron phosphate production capacity will expand faster in 2022. As of 22Q2, the available production capacity has reached 1.034 million tons, an increase of 136,000 tons from the end of 2021. It is expected that by the end of 2022, the available production capacity of lithium iron phosphate will reach 2.998 million tons (the demand for lithium iron phosphate cathode is expected to be only about 2.5 million tons in 2025), with the largest increase in the third quarter, with capacity expansion reaching 866,000 tons in a single quarter. The production expansion rate of cathode materials far exceeding demand and the resulting demand for stocking up are expected to highlight the amplifier effect and help the demand for lithium salts continue to increase.

2.2.2 Large cylindrical batteries are about to be released, and the demand for lithium hydroxide is expected to increase

4680 This may be the final form of cylindrical batteries. The 4680 battery made its debut at Tesla "Battery Day" in September 2020. It uses high-nickel positive electrode + silicon carbon negative electrode materials, and tip-less technology (the internal resistance is 65% lower than the traditional single-pole tip battery core of the same system) -80%, greatly increasing power input and output), and the energy density reaches 300Wh/kg, which is higher than the current 160-200Wh/kg of iron-lithium monomer and 200-300Wh/kg of ternary. At the same time, the battery capacity is increased by 5 times and the output power is increased by 6 times compared with the current solution. The cruising range of electric vehicles equipped with this battery can be increased by 16%, and the battery cost per kilowatt-hour can be reduced by 14%. In terms of charging speed, it only takes 15 minutes to charge the 4680 battery from 10% to 80%, while it takes 25 minutes to charge the 21700 battery to 70%. Large cylindrical batteries have the characteristics of simple and highly standardized process, reduced layer structure of the entire package, and simple grouping, which have certain advantages in terms of overall cost. Mass production of

is imminent and will lead the world into a high-nickel era. (1) In May 2022, Tesla announced that it plans to officially deliver the 4680 battery version Model Y to ordinary users. This model is equipped with Tesla 4680 batteries and structural battery packs, and is currently only available for delivery to users near the Texas factory. At the same time, Tesla is also asking Panasonic to speed up the development of its 4680 battery. (2) Panasonic began large-scale trial production of 4680 batteries in Japan at the end of May this year, and will mass-produce 4680 batteries in Wakayama Prefecture, Japan, as soon as 2023 and supply them to the North American market. (3) South Korea’s Samsung SDI also announced that it is currently testing at least two types of 4680 cylindrical batteries. (4) In June 2022, LG Energy Solution announced two new battery manufacturing investments in South Korea, planning to invest 580 billion won (approximately US$450 million) to build a new factory in Wuchang, South Korea. Used in the production of 4680 batteries.The new production line has a capacity of 9GWh and can be used to produce approximately 125,000 electric vehicles. "Volume production" of the new production line is expected to be ready in the second half of 2023, indicating that LG Energy Solution is in a similar stage to Panasonic, which is targeting fiscal year 2023 (April 1, 2023 to March 31, 2024 ) has begun mass production at the Wakayama factory in western Japan, and large cylinders are expected to increase in volume quickly.

Lithium hydroxide price: Overseas prices exceed domestic prices, and supply and demand continue to be tight. China is the world's major exporter of lithium hydroxide, and its products are exported to Japan, South Korea and other places, supplying the European and American electric vehicle supply chains. According to Platts data, as of June 24, 2022, the delivered price of lithium hydroxide in North Asia (South Korea) is equivalent to approximately RMB 510,000 per ton, which is significantly higher than China’s domestic price. At the same time, China’s export price of lithium hydroxide is also as high as approximately 470,000/ton, showing that the demand for overseas production , especially high-nickel ternary, is still strong and the price acceptance is high.

Lithium hydroxide supply and demand: Production expansion will be radical in the future, but supply and demand are still tight. In the future, global lithium hydroxide production lines will expand rapidly. We estimate that global lithium hydroxide production will be approximately 230,000 tons in 2021, and is expected to grow to more than approximately 700,000 tons by 2025. In the future, as the market share of large cylinders and high-nickel ternary products increases, it is expected that the demand for lithium hydroxide will also grow rapidly in the future, and will generally maintain a tight balance from 2022 to 2025.

2.3 The lithium price center may remain high for a long time, and it is expected to usher in a switch from cycle to growth

2.3.1 The lithium concentrate auction is expected to continue, and the cost will support the high lithium price in the second half of the year

Changes in the pricing mechanism of the lithium industry chain, BMX electronic trading platform and other new The pricing mechanism of the resource side has gradually strengthened the pricing power of the resource side, and lithium mine will continue to enjoy high premiums. Ngungaju production capacity may be sold through the BMX platform, and the new pricing mechanism may catalyze the acceleration of lithium prices. Ngungaju plans to start production in Q2-Q3 of 2022, with an annual production capacity of 180,000-200,000 dry tons. The lithium concentrate produced by Ngungaju will all be sold through the BMX auction platform. Since the current long-term price of lithium concentrate is mainly based on quarterly or annual pricing, the price performance obviously lags behind the spot price of lithium salt. A new pricing mechanism will better match demand. The information is expected to reflect the real-time market pricing of lithium concentrate. In May 2022, Pilbara held its fifth auction, with a final transaction price of US$5,955/ton (FOB, 5.5% lithium oxide grade), and an auction quantity of 5,000 tons, which will be shipped from June to July 2022. We estimate The tax-included cost of a single ton of lithium salt corresponding to the auction price is (5955/5.5*6+110 (freight))*6.7 ( exchange rate )*8 (conversion factor)*1.13 (value-added tax)+35000 (processing cost) )=435,000 yuan/ton. The lithium concentrate in this auction is expected to be produced as lithium salt for market sale in Q4 2022. From the cost side, this auction has established that the lithium price center in the second half of the year will most likely be above 400,000 yuan/ton.

2.3.2 The margin of circulating lithium resources is tightening, and lithium prices are easy to rise but difficult to fall in the future.

Although the absolute amount of lithium concentrate circulating in the spot market will increase in the future, the proportion will tighten at the margin. According to our statistics, the proportion of global lithium resources that have not been underwritten and locked in 2021 is 18%, mainly from Qinghai Salt Lake , Western Australia Pilbara and Galaxy Resources, as well as scattered orders in the South American Salt Lake Department. As overseas miners begin to seek to create vertical integration in the future We expect that by 2024, the proportion of global unlocked lithium resources will decline to 11%. Lithium prices are determined by the marginal spot market, and the marginal tightening of the bulk market may indicate that prices will remain high for a long time in the future. (Report source: Future Think Tank)

2.3.3 Supply and demand balance: Long-term supply exceeds demand or will continue, optimistic about future sector valuation increases

Stock price & lithium price review: The core of this round of lithium sector deviation is the belief that high lithium prices are unsustainable.Reviewing history, lithium prices are highly correlated with stock prices. The start and end of the last cycle were consistent with the high growth and decline of the To B market. However, the core reason for the deviation since September last year is that the sustainability of demand was underestimated. , underestimated the sustainability of high prices, and lacked the anchor for forward pricing and valuation.

The pricing power of lithium resources has gradually strengthened, pushing up lithium prices. New supply is limited, and the long-term contradiction between supply and demand is difficult to resolve. Due to excess supply in the industry in the early stage, and many spodumene mines and salt lake production capacity were suspended or delayed, new effective supply will be limited in 2022, and supply may be tight. In 2023, with the second phase of Pilbara put into operation and the resumption of production at Wodgina, supply will increase. The tension may be alleviated; however, it is expected that with low expectations for greenfield projects and accelerated growth of new energy terminals, supply may be in short supply again in 2024-2025. From 2022 to 2025, we judge that lithium prices will still remain at a high level of more than 250,000-300,000 yuan. We believe that the focus of price attention in the future should change to sustainability rather than peak prices. 2023 is expected to be a periodic high point for the supply side to be released. However, with the demand side maintaining 35% growth, the supply is still in short supply. We judge that it is difficult to see a price of less than 200,000 yuan/ton for lithium in the future. The high price is expected to continue, and we are optimistic about the lithium sector companies. Future valuation fixes.

Nickel and cobalt: The price center is expected to move downward, and ternary demand may increase the margin

In the first half of 2022, nickel and cobalt prices have experienced a spectacular market, but this has put pressure on downstream demand. Nickel has experienced an unprecedented rise due to the Russia-Ukraine conflict and the LME nickel squeeze. At the same time, cobalt prices have also risen rapidly due to frequent supply-side disturbances and the recovery of European and American demand. However, the impact on downstream batteries, especially the ternary system, is greater, and demand is under pressure. Looking to the future, we believe that after experiencing a surge, the price center of nickel and cobalt is expected to move downward. In the future, downstream ternary batteries will benefit from falling costs and demand is expected to rise marginally. At the same time, the overall price center throughout the year is still expected to rise significantly year-on-year, and related companies are expected to welcome the The valuation will increase due to the substantial growth in profits and the increase in demand.

3.1 Cobalt: Demand is under short-term pressure, and the price center is expected to stabilize in the future.

3.1.1 Supply side: Transportation disturbances occur frequently, and cobalt price support remains.

Transportation disturbances still exist, and the increase in cobalt raw material imports is limited. (1) Affected by the floods in KwaZulu-Natal, South Africa, in April 2022, the Port of Durban, South Africa, the main export port for cobalt raw materials in Africa, announced an emergency suspension of operations. The transportation and shipping schedule of cobalt raw materials were once again affected. If considered As for the shipping schedule, it is expected that the arrival of cobalt raw materials shipped to China after June will be affected, and transportation disturbances will still exist. (2) In April 2022, cobalt mine imported 72.6 metal tons (converted at 8% grade), a year-on-year decrease of 16% and a month-on-month decrease of 41%. From January to April 2022, China's cobalt ore imports totaled 669 metal tons, a year-on-year increase of 174.4%. In April, the import of cobalt hydrosmelting intermediate products was 7,151 metal tons (converted based on 27% grade), a decrease of 24% month-on-month and a year-on-year decrease of 26%. From January to April 2022, China’s total import volume of cobalt hydrosmelting intermediate products was 29,900 tons of metal tons, a year-on-year increase of 6.5%. Overall, China's imports of cobalt raw materials in April 2022 were 7,436 metal tons, a sharp decrease of 25% month-on-month. From January to April 2022, China's imports of cobalt raw materials were 31,800 metal tons, a slight increase of 0.2% year-on-year. The overall growth rate was limited. Supply disturbances may gradually decrease in the future, and the impact is expected to be marginally weakened. With the impact of the global COVID-19 epidemic since 2020, the cobalt supply chain has been affected by the African epidemic and transportation. Strikes and other impacts on logistics have objectively led to tight supply of cobalt raw materials. However, with the normalization of epidemic prevention and control, and the unsustainability of floods, strikes and other events, we believe that after two years of adaptation, the impact of supply-side disturbances on cobalt has tended to weaken marginally, but it is still a factor in cobalt prices. support.

In 2022, laterite nickel ore will increase in volume + Congolese gold and cobalt mines will resume production, and supply is expected to be released in the second half of the year. (1) laterite nickel ore : 2022 will be a big year for laterite nickel ore to be put into production and increase in volume, and it is expected to gradually increase in volume in the second half of 2022.The Liqin OBI nickel and cobalt smelting project will be put into operation in 2021 and is expected to increase significantly in 2022. Huayou Huayue's laterite nickel wet process project with an annual output of 60,000 tons of nickel metal will reach production in April 2022 and will also contribute significantly at the same time, GEM is also accelerating the Indonesian nickel resource project, building a wetland with a production capacity of not less than 50,000 tons of nickel metal (including 20,000 gold tons of nickel intermediate products and 30,000 gold tons of nickel sulfate) and 4,000 tons of cobalt metal. At the French chemical smelting base, plans to put into operation in 2022. (2) The Congolese gold copper and cobalt mine: Mutanda’s resumption of production is expected to accelerate. Glencore guides the production of 11,000 tons in 2022 (last year: 3,900 tons), a significant year-on-year increase of 182%; at the same time, Glencore guides Katanga’s full-year production target. 45,000 tons, still an increase of 44% compared with 31,300 tons last year. In the medium to long term, laterite nickel ore projects are expected to become the raw material source with the fastest growth in cobalt supply in the future. We predict that the average annual compound growth rate of primary cobalt on the supply side may reach 9.9% from 2020 to 2025. The average annual compound growth rate of cobalt supply associated with laterite nickel mines from 2020 to 2025 will be 20%, and the supply will increase from 19,600 tons. to 50,400 tons, which will be the most important increase in supply in the future. With the large-scale production of nickel projects deployed in Indonesia by Chinese-funded enterprises such as Huayou Cobalt and GEM, the output of cobalt associated with laterite nickel mines will increase significantly in the future.

3.1.2 Demand side: Consumer electronics is under short-term pressure, optimistic about the irreplaceability of cobalt in ternary batteries

From the demand side, cobalt demand is mainly distributed in the battery field, especially in the 3C battery field, so consumer electronics is the short-term cobalt demand Core. (1) We estimate that the lithium battery field will account for 60% of global cobalt demand in 2021, with the remaining high-temperature alloys (14%), cemented carbide (6%), hard surface materials (3%), and ceramics (4%) , catalysts (5%), magnetic materials (2%), tires/driers (3%) and other fields (3%), etc. (2) In terms of breakdown, consumer electronics is still the core of cobalt demand: the lithium battery sector is divided into power lithium batteries in the new energy vehicle field (35%) and non-power batteries in the 3C consumer electronics field (65%). Currently, it is Power batteries are still the leading item in demand, while non-power batteries account for 57% of the demand for mobile phones (57%), laptops (18%), tablets (9%), lithium battery energy storage (4%) and other 3C products (12%).

On the power battery side, we believe that cobalt is still irreplaceable in the application of ternary materials. Cobalt is a key factor in significantly improving the energy density and battery life of ternary lithium batteries because cobalt can maintain a stable layered structure when lithium ions are reversibly charged into or extracted from the cathode during battery operation. Cobalt is still an indispensable key element for ternary materials. Increasing the nickel content of ternary materials can increase the energy density, but it will also decrease the stability of the material, causing a series of problems in material preparation and lifespan. A tough challenge. Cobalt is exactly the element still needed to stabilize high-nickel ternary materials. Although the amount can be reduced, the content still cannot be reduced to zero. The compensatory effect of cobalt in the ternary cathode material is too obvious (more gain effect). If the cobalt is completely removed, the performance will be completely degraded, or even the cost will be increased, which will lead to a decrease in cost performance.

Cobalt’s gain effect on ternary materials is mainly in three aspects: (1) Gain in dynamic properties: increasing conductivity and suppressing Li/Ni mixing; (2) Gain in structure and thermal stability of ternary materials; ( 3) Gain for the morphology of ternary material powder particles. Therefore, we believe that cobalt is still an indispensable element for ternary batteries at the current stage.

increases conductivity and inhibits Li/Ni mixing. (1) The power performance of the battery is one of the most important indicators. The two important dimensions to measure the power performance are the rate performance and DC internal resistance of the battery cell. The cobalt element is crucial to the dynamic performance gain of the cathode material, because Among lithium-containing oxides, the Co3+/4+ energy level is the lowest (the lithium intercalation voltage is the highest). At the same time, the anisotropy of the Co-3d and O-2p hybrid orbitals contributes to the conductivity gain of the material in the high delithiation state. Significantly.(2) Li/Ni mixing will restrict a series of movements such as the migration, transport, and diffusion of lithium ions inside the lattice, leading to the deterioration of rate performance. Furthermore, it will also cause anisotropic stress formation in the bulk structure. and degrade the cyclic stability of the material. Because Ni2+ has two unpaired lone electrons, the super-exchange effect of antiferromagnetic Ni2+-O-Ni2+ (e(g)-2p-e(g)) is the strongest, and Ni2+-O-Ni3+ (e(g) - 2p-e(g)) has a moderate super-exchange effect, Ni2+-O-Mn4+ and Ni2+-O-Co4+ (both e(g)-2p-t(2g)) have a weak super-exchange effect, and because Co3+ Lacking unpaired electrons, Ni2+- O- Co3+ has the weakest super-exchange effect. Therefore, the presence of Co3+ can greatly increase the difficulty of Li/Ni mixed arrangement formation, thus stabilizing the dynamic position of NCM ternary layered materials.

gain in structure and thermal stability. (1) Stable structure: Ni3+ arranged in three triangular distributions of layered oxides will generally produce two opposite magnetic moments, thereby triggering the magnetoresistive frustration effect, while Li+ has no magnetic moment and will exchange with Ni3+ to alleviate the magnetoresistive frustration. To reduce the energy of the system, thereby inducing Li/Ni mixing and causing rapid collapse of electrochemical performance. The non-magnetic nature of Co3+ reduces the magnetoresistive frustration of the transition metal layer and stabilizes the structure. (2) Thermal stability: Because of the special position of its energy band, Co element can be reduced before Ni element in a high delithiation state and occupy a tetrahedral position, thereby delaying the migration of Ni element and delaying the release of oxygen heat. reaction, improving the thermal stability of ternary materials. The gain of

for the morphology of ternary material powder particles. The particle size and morphology of the particles directly affect the compaction density of the electrode sheet. Secondary spheres with too small particles are obviously not conducive to the improvement of volume energy density. The characteristics of particle morphology are related to the surface energy of different crystal planes of the material. Adding Co element to the ternary material can significantly increase the surface energy of this crystal plane, while the role of Mn element here is minimal. The presence of the Co element can fully adjust the size and morphology of the ternary material powder grains, better improve the fault tolerance rate of the manufacturing process and match the volumetric energy density of the battery core.

In the medium and long term, as the penetration rate of medium and high nickel ternary (including high nickel ternary and medium nickel high voltage) shows an upward trend, the unit cobalt consumption of new energy vehicles may decline, but the overall cobalt consumption will still increase significantly. . We predict that the proportion of NCA/NCM811 in ternary materials will significantly increase from 30% in 2020 to 77% in 2025; from 2020 to 2025, the average annual compound annual decline in cobalt consumption for new new energy vehicles is expected to reach 10.1 %, but the average annual compound growth rate of demand for cobalt in the power battery field will still reach 24.2%, growing from 21,000 tons to 62,300 tons.

3.1.3 The supply and demand pattern is gradually improving, and the price center is expected to stabilize.

Review of historical cobalt prices. Cobalt has experienced three cycles in the past 20 years and is currently in the third cycle. The main driving forces for this round of cobalt price increases are supply-side disruptions, the recovery of overseas aviation demand, and the rapid growth of global battery demand; while the reasons for this round of rapid price decline are the periodic weakness of battery demand and the loosening of overseas discount coefficients (as of June On the 17th, the discount coefficient has dropped significantly to 65%-70%), resulting in a drop in costs. Looking forward to the second half of the year, we believe that the core contradiction of cobalt prices lies in demand. It is expected that with the recovery of consumer electronics and the rapid increase in battery demand in the new energy field, the supply and demand pattern will gradually improve, and the price center is expected to stabilize after a correction.

3.2 Nickel: Supply is still constrained, and nickel prices may fluctuate

3.2.1 Structural conflicts intensify, nickel prices fluctuate significantly

Lun nickel squeeze incident. Since 2021, LME nickel inventory has continued to decline. It has reached a record low in early March, and the proportion of canceled warehouse receipts exceeds 70%. Most of the spot is in a non-circulating state, and a large number of positions are concentrated in the near month. Bulls judge that shorts do not have enough spot standards. The commodities were used for delivery, and the conditions for squeezing positions gradually matured. On March 3, LME nickel began to gradually squeeze positions. Due to the strong consensus expectations of the longs, the trading volume dropped significantly, and even a small move of short positions would lead to a sharp rise in prices. The LME nickel price hit a record high. After reaching a record high, with the access to the London Exchange, the incident subsided and nickel prices began to fall. Structural contradictions create a binary pricing system for nickel.The LME nickel squeeze event was caused by the structural contradictions mentioned in our annual strategy. To understand the squeeze event, you need to understand the nickel industry chain. The nickel industry chain is mainly divided into two parts: stainless steel and power batteries. The raw material of stainless steel is mainly nickel iron, accounting for 95%. The raw materials of nickel sulfate mainly include wet intermediate products, electrolytic nickel, scrap and high ice nickel, while electrolytic nickel is LME For delivery products, the formation of the binary pricing system is mainly due to the large difference in supply and demand between the two lines. The supply of stainless steel raw materials, nickel iron, is relatively sufficient, while the raw material of nickel sulfate is relatively tight, and the excess of nickel iron cannot be transmitted to the nickel sulfate raw material. Specifically, for the nickel sulfate line, there will be less wet intermediate product production in 2021. Qingshan high matte nickel will not be put into production until the end of the year, and the supply is far less than expected. However, the demand for nickel sulfate has increased sharply, and the supply of raw materials can only rely on Electrolytic nickel, so we're seeing a significant decline in electrolytic nickel stocks. For stainless steel strip lines, Indonesian ferronickel has been put into large-scale production, and the supply is relatively sufficient. However, the production capacity of ferronickel-high matte nickel-nickel sulfate is progressing slowly, so the excess of ferronickel cannot be transmitted to nickel sulfate, resulting in a divergence in nickel prices between the two production lines. . The return of

pricing will depend on the progress of nickel intermediate product production capacity. From the perspective of the nickel industry chain, there is little intersection between new energy vehicle lines and stainless steel lines. Only the process of smelting high matte nickel from ferronickel and then producing nickel sulfate can cut into the new energy vehicle industry chain. Therefore, opening up this process can solve the two problems. In the yuan pricing system, the linkage between nickel products will also be enhanced. Otherwise, nickel will still rely on wet process intermediate products-nickel sulfate and ferronickel-stainless steel. The supply and demand of the two lines are determined by their own supply and demand, and it will still be a two-yuan pricing system. Therefore, if the production capacity of ferronickel-high matte nickel-nickel sulfate is quickly released, the pressure of excess ferronickel can be channeled to the new energy car line, the price difference between nickel products will converge, and the nickel price will return to the one-yuan pricing system of overall supply and demand. .

3.2.2 High nickel matte production capacity has been released, and the supply of nickel sulfate raw materials has increased significantly.

Ferronickel production capacity has grown steadily, and the inflection point of supply and demand has appeared. With the relaxation of Indonesia's epidemic prevention and control policies, the advancement of ferronickel projects has accelerated, and production growth has begun to accelerate. From January to May 2022, Indonesia's ferronickel output reached 446,000 metal tons, a year-on-year increase of 28%. In the second half of this year, Indonesian ferronickel is expected to put into production 448,000 tons. The supply pressure of ferronickel is high, and supply and demand are turning to excess. The import window is closed and the supply of electrolytic nickel is declining. As LME inventories remain low and coupled with squeeze events, LME nickel prices perform strongly. Domestic high-grade matte nickel and wet-process intermediates replace electrolytic nickel, and demand for nickel sulfate is relatively weak. Domestic nickel prices are weaker than the external market, and imports The window is closed and import volume continues to decline. From January to April 2022, my country's electrolytic nickel import volume was 69,400 tons, a year-on-year increase of 35.8%, and electrolytic nickel imports dropped significantly month-on-month.

3.2.3 Demand side: The demand for stainless steel is tough, the mass production of large cylindrical batteries is accelerating and high nickelization

The output of stainless steel remains high, and the demand for 300 series is strong. Although affected by the domestic epidemic, stainless steel demand is resilient and output remains high. From January to May, China + Indonesia's stainless steel output was 15.74 million tons, a slight decrease of 0.1% year-on-year. Among them, the output of high-nickel 300 series stainless steel was 9.28 million tons, an increase of 9.0% year-on-year. %, although stainless steel is a traditional industry, the demand for substitution is strong and has maintained a high growth rate. The demand for nickel is also obvious. With the steady growth of the country in the second half of the year, the demand for stainless steel is expected to reach a higher level.

The impact of the epidemic has superimposed the price surge, and the demand for nickel sulfate is weak. Affected by the epidemic, sales of new energy vehicles were lower than expected, and coupled with the March nickel squeeze, nickel prices rose sharply, which also suppressed demand for nickel sulfate. From January to May, China's nickel sulfate production was 121,000 metal tons, a year-on-year increase of 24.4%. From a month-on-month perspective, nickel sulfate production was slow, and the rise in nickel prices also suppressed demand. High matte nickel, wet intermediates, etc. replaced electrolytic nickel, and the tension in nickel sulfate raw materials eased.In terms of raw materials, due to the substantial increase in imports of high matte nickel and wet process intermediates, which replaced electrolytic nickel, in May 2022, the proportion of electrolytic nickel among nickel sulfate raw materials has dropped to 20%, and high matte nickel, wet process intermediates and other intermediate products The proportion increased to 62%. The monthly usage of electrolytic nickel is about 4,600 metal tons, a decrease of 11,000 metal tons from November 2021. The premium of nickel sulfate to nickel beans has also narrowed significantly from 30,000 yuan/ton at the beginning of the year to 10,000 yuan/ton. Yuan/ton, the economic efficiency of acid dissolution of nickel beans has declined, and the tension in nickel sulfate raw materials has gradually eased.

Nickel intermediate products to nickel sulfate production capacity may be insufficient. The unblocking of the nickel sulfate intermediate product raw material production line requires not only the completion of the construction of nickel intermediate product production capacity, but also the construction of supporting production capacity from nickel intermediate products to nickel sulfate. Only in this way can the entire industrial chain be opened up, and nickel intermediate products can complete the electrolytic nickel Substitution to alleviate the shortage of nickel sulfate raw materials. In 2022, 140,000 tons of production capacity will be built from nickel intermediate products to nickel sulfate, all of which will be put into production in April. The current production capacity is in a climbing period. From the perspective of supporting production capacity, the back-end supporting production capacity of nickel intermediate products in the second half of the year is lower than the production capacity of upstream nickel intermediate products, and the supporting production capacity is slightly insufficient. In addition, for decades, there have been basically no companies using laterite nickel ore-ferronickel-high matte nickel-nickel sulfate. It takes time to master the technology, and the ramp-up of nickel intermediate products to nickel sulfate production capacity may be slow, which may also become a restriction on nickel sulfate supply in the second half of the year. (Report source: Future Think Tank)

3.2.4 Balance of supply and demand: Primary nickel is gradually in excess, nickel sulfate supply and demand are still tight

Primary nickel has entered excess, and structural contradictions are still the main logic. From the perspective of primary nickel, due to the high pressure of ferronickel production, nickel supply and demand have turned into excess. However, as we stated in our annual strategy, the dominant logic of nickel this year is structural contradictions, not the overall supply and demand contradiction. The excess of nickel Mainly reflected in the nickel-iron end. Although the supply of high matte nickel and wet-process intermediates increased significantly in the first half of the year, the demand for nickel sulfate was also weak, which led to some relief of structural contradictions and a significant narrowing of the nickel sulfate gap. However, the current supply and demand of nickel sulfate is still tight, and electrolytic nickel inventory is still slow. decline.

The supply of high matte nickel, wet process intermediates and nickel sulfate is facing constraints. The demand for nickel sulfate is expected to strengthen, and the gap between supply and demand may expand. The production capacity of Qingshan Gaomo Ni and Huayou wet process projects has basically been released. The subsequent projects will be put into operation at the end of the third quarter, and supply is expected to be formed in the fourth quarter. Moreover, the supporting nickel sulfate production capacity downstream of nickel intermediate products is relatively insufficient, and the production capacity ramp is also slow. Intermediate products The supply of nickel sulfate still faces constraints, as does nickel bean demand. On the demand side, with the improvement of the domestic epidemic situation and the mass production of large cylindrical batteries, the demand for nickel sulfate is expected to strengthen. The supply pressure of high nickel matte and wet-process intermediate products is in the fourth quarter, and it is faced with the constraints of insufficient supporting capacity of downstream nickel sulfate production capacity. There is still uncertainty in the supply volume. However, the demand for nickel sulfate is expected to rise, and supply and demand may face a gap again.

3.2.5 Outlook: Supply is still constrained, and nickel prices may fluctuate.

Large cylindrical batteries are accelerating the process of high nickelization. Structural contradictions continue, and the inflection point of supply and demand needs to be waited patiently. 1) On the supply side, as the epidemic eases, Indonesian ferronickel production speeds up, and output growth accelerates. In H1 of 2022, the month-on-month increase will be 2,500-3,000 metal tons, and supply pressure is relatively high; the production capacity of Qingshan High Matt Nickel and Huayou wet process projects has climbed. The slope is basically over, and new production capacity will be gradually put into operation in the latter part of the third quarter. The pressure on the supply of nickel sulfate raw materials has eased, and the downstream supporting intermediate products to nickel sulfate production capacity are also insufficient, and supply is still facing constraints. 2) On the demand side, domestic demand for stainless steel is resilient and production remains high, while demand for nickel sulfate is relatively poor in the first half of the year. With the improvement of the domestic epidemic situation and the implementation of stabilizing growth and ensuring employment, stainless steel demand is expected to continue to improve, and large cylindrical batteries It not only reduces costs, improves the cost performance of ternary batteries, but also accelerates the process of high nickel. As the penetration rate increases in the second half of the year, the demand for nickel in new energy vehicles may pick up significantly.3) Ferronickel is heading towards surplus, nickel sulfate raw materials are still tight, ferronickel is put into production quickly, stainless steel increment is relatively limited, and the excess pressure of ferronickel will be highlighted; in the first half of the year, the demand for nickel sulfate is poor, while the production capacity of high matte nickel and wet intermediate products is released , causing electrolytic nickel to be replaced in large quantities, and supply and demand are excessive. In the second half of the year, the downstream new energy vehicle market gradually picked up. Large cylindrical batteries drove strong demand for nickel, while the increase in the supply of nickel sulfate raw materials was slow, and the downstream supporting production capacity was also relatively insufficient. In Driven by the recovery in demand, the nickel sulfate gap may expand. Combined with the current low inventory background, the downward pace of nickel prices will not be smooth. Overall, structural contradictions are still the main factor in nickel prices. Due to production capacity and process limitations of ferronickel-high matte nickel-nickel sulfate, the excess of ferronickel is still difficult to be transmitted to nickel sulfate lines in the short term, while the supply and demand of nickel sulfate lines dominates nickel prices. Price trends, with the recovery of the epidemic and the mass production of large cylindrical batteries, the demand for nickel sulfate is expected to strengthen, and supply and demand may tighten again. With the release of macro pessimism in the market, fundamentals will support nickel prices, and nickel prices may repeatedly.

Rare earth industry: Demand is increasing, and things are different now.

4.1 Review: The supply of "three axes" is the core driving force for the rise in rare earth prices in history.

When we review the price trend of rare earths, we can find that the price increases of rare earths in history have been much higher. Disturbance on the supply side. The typical "three major supply-side disturbances" are stockpiling, crackdown on illegal activities, and industry consolidation. Whenever news comes out, rare earth prices will start to rise rapidly. However, when the supply-side disturbance weakens, the price will often fall quickly back to the starting point. , so the market trends are mostly pulse-type sharp rises and falls. The current round of rare earth prices has been gradually rising since April 2020. Although there was a correction in the middle, the overall upward trend is still maintained.

010.10-2011.7: Stimulated by policies such as purchasing and storage, the resonance of multiple factors has prompted a sharp rise in rare earth prices. The supply side of rare earths has decreased. China proposed strategic purchasing, stockpiling, and export quotas. Coupled with weak supervision at that time, some traders in society were hoarding goods. Under the resonance of various factors, the supply side was greatly disturbed, and rare earth prices skyrocketed.

2013.5-2014.6: Industry consolidation + crackdown on blackmail are two-pronged, and supply disruptions have reappeared. In January 2013, the Ministry of Industry and Information Technology issued the "Guiding Opinions on Accelerating the Merger and Reorganization of Enterprises in Key Industries", and the integration of the rare earth industry began to accelerate. In August 2013, the Ministry of Industry and Information Technology organized a special campaign to “crack down on rare earth illegal activities”.

2017.5-2017.9: Purchasing and stockpiling + crackdown on criminals, reducing supply. In January, March, and May of 2017, 5,900 tons were purchased and stored; in May of the same year, a special campaign of “rare earth crackdown on illegal activities” was launched, resulting in a decrease in the supply of rare earths. However, as the "cracking down on organized crime" operation came to an end and the purchase and storage came to an end, the rise in rare earth prices took a turn for the worse.

2020.4-present: Downstream has entered the demand resonance stage where a hundred flowers bloom. The downstream demand for rare earths is increasing rapidly due to the boom in new energy vehicles, industrial motors, wind power motors, air conditioning motors, and consumer electronics. Affected by the automobile recovery cycle, automobile production and sales have increased, the penetration rate of new energy vehicles has increased rapidly, new energy vehicles have a high degree of electrification and automation, and the demand for rare earth permanent magnets in bicycles is higher than that of traditional cars; in November 2021, the Ministry of Industry and Information Technology issued the "Motor The Energy Efficiency Improvement Plan has boosted the demand for rare earths in energy-saving motors; energy transformation has led to an increase in the installed capacity of new energy sources represented by wind power year after year.

We believe that the current rare earth industry is still sitting on a high-quality supply structure and unprecedented demand growth, and the sustainability of price increases may exceed market expectations. As of May 27, 2022, the prices of praseodymium and neodymium oxide/metal praseodymium and neodymium were 95 and 1.16 million yuan/ton respectively. They have increased by 265.9%/254.5% respectively since the beginning of 2020. There is room and sustainability for this round of rare earth price increases. It is extremely rare in history. We believe that the reason behind it is that the current round of rare earth price increases is more driven by demand.

4.2 Supply side: The core is domestic quota growth, and it may be difficult for overseas mines to increase in the short term

4.2.1 Rare earth supply concentration: China’s reserves and output are the first in the world

Rare earth refers to 17 chemical elements in the periodic table of elements, namely Scandium, yttrium and 15 lanthanides. Scandium and yttrium are considered rare earths because they commonly coexist with other rare earth elements and are chemically similar to the lanthanides.According to data from Asian Metal, in terms of reserves, global rare earth reserves will be approximately 120 million tons in 2021. China's rare earth reserves rank first in the world, with 44 million tons, accounting for 35%. Vietnam's rare earth reserves are 22 million tons, accounting for 18%, ranking second; Brazil's rare earth reserves are 21 million tons, accounting for 17%, ranking third; Russia's rare earth reserves are 21 million tons, accounting for 17%. Ranking fourth, the reserves of the top four rare earth reserve countries account for 86% of the world's total reserves, and the distribution of resources is very concentrated. In terms of production, global rare earth production in 2021 is about 277,000 tons, and China's rare earth production ranks first in the world, with 168,000 tons, accounting for 60.7%. The United States ranks second with 43,000 tons of rare earth production, accounting for 15.5%. Myanmar’s rare earth output was 26,000 tons, accounting for 9.4%, ranking third. Australia’s rare earth output was 22,000 tons, accounting for 7.9%. The output of the top four rare earth producing countries accounts for 93.6% of the world's total output, and the distribution of output is also very concentrated.

China’s rare earth resources are characterized by being light in the north and heavy in the south. In terms of resource volume, 123 million tons (91%) of light rare earth resources and 12.03 million tons (9%) of heavy rare earth ores have been identified in 2020. The northern region is rich in light rare earth resources, mainly distributed in Inner Mongolia. Its resources are 102 million tons, accounting for 75.22% of the total rare earth resources. The southern region is dominated by ion-adsorbed medium rare earth and heavy rare earth minerals. Guangdong Province has the most abundant heavy rare earth resources, with 3.89 million tons, accounting for 2.88% of the total rare earth resources and 32.34% of the domestic medium and heavy rare earth resources. In terms of reserves, as of the end of 2019, China had 57.32 million tons of light rare earth reserves (97.62%) and 1.31 million tons of medium and heavy rare earth reserves (2.38%). Among them, the Bayan Obo mining area in Inner Mongolia has the largest light rare earth reserves, with 46 million tons, accounting for 86%. Ganzhou in Jiangxi Province and Yuedong in Guangdong Province have relatively large medium and heavy rare earth reserves of 570,000 tons and 500,000 tons respectively, accounting for 44% and 38% of the total medium and heavy rare earth reserves.

China accounts for more than 88% of the world’s output of rare earth smelting and separation products. Antaike data shows that the global output of rare earth smelting separation products totaled approximately 260,000 tons (REO) in 2021, a year-on-year increase of 23.3%. Among them, China's output is about 245,000 tons, accounting for 94.2%, including the total production index of the six major rare earth groups of 162,000 tons. The output of smelting separation products produced from imported American mines, Myanmar mines and monazite mines are 38,000 tons, respectively. 18,000 tons and 28,000 tons; Australia's Lynas Corporation's Kuantan rare earth (LAMP) separation plant in Malaysia produced 11,400 tons in the first three quarters of this year (the Australian fiscal year deadline is June 30, so the first three quarters of this year Quarterly refers to the period from June 30, 2021 to March 31, 2022), and the annual output is expected to be approximately 15,200 tons, a year-on-year increase of 2.3%.

4.2.2 Domestic crackdown on illegal activities is normalized, and rare earth quotas have grown steadily

Domestic rare earth quotas have maintained a year-on-year growth rate of 20% for two consecutive times starting from the second batch in 2021, and the CAGR of national rare earth mining indicators and smelting separation indicators from 2016 to 2020 were respectively Only 7.49% and 7.91%, the rare earth index has entered a new era. The reason is more that the rapid growth of downstream new energy vehicles, energy-saving motors and other fields has boosted the demand for upstream rare earths. We expect that the growth of rare earth indicators will benefit from the rapid expansion of downstream industries. In the future, rare earth indicators are expected to remain stable for a long time. The central growth rate is about 20%. Policies to crack down on illegal activities have become normal, and "black rare earths" have withdrawn from the stage of history. Black rare earths are rare earth products that are illegally harvested without government mining approval. According to statistics from the China Rare Earth Industry Association, China's black rare earth production was more than 40,000 tons in 2014, accounting for about half of the legal mining volume, seriously hindering the development of the rare earth industry. healthy growth. Since 2017, the country has continued to intensify its efforts to crack down on organized crime. In 2018, the Ministry of Industry and Information Technology issued the "Notice of the Twelve Departments on Continuing to Strengthen the Order and Rectification of the Rare Earth Industry", which normalized and institutionalized the crackdown on organized crime and formed a joint supervision system. The 2021 "Rare Earth Management Regulations (Draft for Comments)" clearly points out the establishment of a traceability information system for rare earth products, and clarifies the penalties for illegal mining, separation and smelting, purchase and sale of rare earth products, etc., taking the supervision to a higher level. It is expected that the first legal provision in the rare earth industry, the "Regulations on the Management of Rare Earths," will be launched in the near future, which will further improve the control of the rare earth industry, and black rare earths may have nowhere to hide.As black rare earths gradually fade out of history under strict supervision, the supply of rare earths will become more rigid.

4.2.3 It is difficult for overseas mature mines to have large increases in the short term, and new projects are mostly in the early stages of the project.

In addition to China, the three largest overseas rare earth supply countries in 2021 are the United States (16%), Myanmar (9%), Australia (8%). Since most of the production capacity for smelting and separation is domestic, from the mining side, my country needs to import a large amount of rare earth ores for separation and smelting. Except for Australian ores that are exported to Malaysia for separation, most mines in the United States and Myanmar are It needs to be exported to my country for subsequent processing. Since 2012, some large overseas mines in the United States have resumed production one after another, and at the same time, high-grade medium and heavy rare earth mines in Myanmar have also gradually increased their output. Due to the limitation of total quantity indicators of rare earth mines in my country, growth has been relatively slow, and the indicators may even decrease. Therefore, overseas imported rare earth ores have always been a major supplementary source of rare earth ore supply, accounting for about 20% of the total domestic supply. United States: MountainPass rare earth mine is one of the highest-grade mines in the world, with a rare earth content of more than 7%. It has a mining history of more than 70 years. It once became the world's main source of rare earths from the 1960s to the 1990s.

As China’s rare earth industry continues to develop, the U.S. rare earth industry continues to shrink, and the MP mine also ceased production in 2002. In 2017, Shenghe Resources restarted the production of the mine through resource and technology intervention, so its output began to climb again in 2019, and the current output has reached its capacity limit of 40,000 tons. MP Company, which owns the largest overseas rare earth mine, has the participation of Chinese companies. Shenghe Resources intervened in 2017 by paying US$5,000+30 million in advance and providing mine development technical services, and held 9.99% of the equity. The rare earth concentrate produced after the MP mine reaches capacity (in 2019) will be fully underwritten by Shenghe until the advance payment is exhausted. In May 2020, the agreement was updated to add an additional US$35 million. A new underwriting agreement was signed in February 2022, which can be extended to 2025.

MP The company’s future development plan is mainly to expand the separation smelting capacity. The rare earth concentrate production capacity is expected to remain stable at around 40,000 tons per year, and the current capacity utilization is close to the limit. The company is currently planning to build a smelting separation facility and a magnets factory in Texas, having received a $35 million contract from the U.S. Department of Defense Industrial Base Policy Office. Myanmar: In the short term, due to the impact of the epidemic, Myanmar’s rare earth ore imports have been blocked; in the long term, Myanmar’s ore grades have gradually declined due to blind mining in previous years. After the Ministry of Industry and Information Technology cracked down on illegal activities, the domestic rare earth black industry chain gradually collapsed. In order to meet downstream demand, my country began to import rare earth minerals, especially heavy rare earth minerals, from Myanmar and other places. In 2021, Myanmar imported 19,459.56 tons of unlisted rare earth oxides, a year-on-year increase of 11%. However, Myanmar imported only 285.5 tons of mixed carbonated rare earths in 2021, a significant decrease of 93.67% year-on-year. In November 2021, the two ports on the China-Myanmar border briefly reopened after being suspended due to the epidemic. However, due to the epidemic progressing beyond expectations, the China-Myanmar border has been closed again since the beginning of the year. The aftermath of the epidemic is still there, and the opening of the China-Myanmar border There is uncertainty. The rare earth ore output of

Company has been on a climb since Mt Weld was put into operation. It reached its peak production in 2019, producing 19,813 tons of rare earth concentrate, of which the output of praseodymium and neodymium was 5,809 tons. Since 2020, affected by the epidemic, the output of rare earth concentrates and praseodymium and neodymium has declined. In H1 of 2022, the company's rare earth concentrate production was 7,375 tons, and praseodymium and neodymium production was 2,614 tons. Before 2018, Lynas had poor profitability and suffered losses year after year. In 2018 and 2019, it achieved after-tax profits of AUD 53 million and AUD 83 million respectively. In 2020, the epidemic broke out and it suffered losses again. Since 2021, rare earth prices have remained high and the company's profitability has improved. In 2022H1, the company achieved an after-tax profit of AU$157 million.

Other overseas mines: At present, most of the new overseas rare earth mine projects are in the early stages of the project, and it may be difficult to increase the volume in the short term.The construction of mines abroad has two major constraints compared with domestic ones. First, the environmental protection requirements are higher, which makes the cost of mining higher and there is no cost advantage; second, the separation technology is backward, and even if there is ore production, it still needs to be transported domestically. Separate smelting. Both of them also restrict the production progress of new overseas mining projects. It is expected that there will be little new overseas production in 2022-2023.

4.3 Demand side: New energy vehicles + energy-saving motors lead the way, and demand is blooming

4.3.1 Praseodymium and neodymium metals are mainly used to produce neodymium iron boron magnetic materials

Rare earth permanent magnet materials are the first to be successfully developed after metal systems and ferrite systems. Third generation permanent magnet materials. Rare earth permanent magnet materials have maintained rapid development since their advent in the 1960s. They can be divided into four generations according to the chronological order of their development and application: the first generation is samarium cobalt permanent magnet (SmCo5) series materials; the second generation is samarium cobalt permanent magnets. (Sm2Co17) series magnets; the third generation rare earth permanent magnets are NdFeB series magnetic materials successfully developed in the early 1980s. Due to their excellent performance and lower price, they quickly replaced samarium cobalt permanent magnets in many fields. And quickly realize industrial production. Among them, sintered NdFeB is also called high-performance NdFeB. The sum of its intrinsic coercivity and maximum magnetic energy is greater than 60, and its performance is even better; the fourth generation is rare earth iron nitrogen and rare earth iron carbon. Industry experts estimate that it will take at least several decades for the highly anticipated fourth-generation rare earth permanent magnet materials to mature and become practical. It is expected that the global permanent magnet materials market will reach US$23.19 billion by 2022, with a CAGR of 8.86% from 2020 to 2022.

Praseodymium and neodymium oxide is mainly used to make NdFeB. The demand for PrNd oxide for high-performance NdFeB will see rapid growth driven by factors such as new energy vehicles, wind power, energy-saving motors, and improved energy efficiency standards for air conditioners. Among them, the better the performance of NdFeB, the more praseodymium and neodymium oxides need to be added. The demand for mid-to-low-end NdFeB is relatively scattered, including luggage buckles, door buckles, toys, electric bicycles and many other fields. The barriers to entry for this part of demand are low, the market is in a fully competitive market, product homogeneity is high, and the overall demand does not change. big. High-performance NdFeB is widely used in automobiles, wind power, variable frequency air conditioners and other fields. It has high entry barriers and is expected to benefit from the booming demand in the new energy industry. The terminal demand for magnetic materials is mainly concentrated in the fields of automobiles, wind power, and industrial motors, while other consumption scenarios are relatively scattered. With the global energy crisis and the strengthening of environmental awareness, industries such as new energy vehicles, wind power energy saving, and variable frequency air conditioners may usher in rapid development, and the demand for high-performance NdFeB is expected to unleash huge potential. It is expected that global demand for high-performance NdFeB will reach 270,000 tons by 2025, with a CAGR of 25.75% from 2021 to 2025, driving demand for praseodymium and neodymium oxide to reach 105,000 tons.

4.3.2 New energy vehicles: increased penetration There are four major types of motors in the field of new energy vehicles: DC motors, induction motors (asynchronous motors), switched reluctance motors and permanent magnet motors. Permanent magnet synchronous motors are lighter, smaller, and more efficient. They can increase the speed to ensure power while reducing mass by 35%. At the same time, permanent magnet synchronous motors have better starting performance, higher peak efficiency, and good reliability. Therefore, the motors of most new energy vehicles use permanent magnet synchronous motors. Compared with traditional cars, new energy vehicles use a higher amount of NdFeB per vehicle. Generally speaking, the NdFeB consumption of a pure electric vehicle is about 3-5kg (4kg is used in the calculation), the NdFeB consumption of a hybrid bicycle is about 2kg, and the consumption of a traditional car is less than 1kg. High-performance NdFeB in traditional cars is mainly used in EPS (electronic power steering), anti-lock braking systems (ABS) and ignitions. With the increase in the use of micro motors in high-end models, the amount of NdFeB used will increase. . Since new energy vehicles mostly use permanent magnet motors, the permanent magnet motors will use a large amount of high-performance NdFeB, thus increasing the amount of NdFeB used in bicycles.(Report source: Future Think Tank)

4.3.3 Energy-saving motors: With frequent favorable policies, energy-saving motors are the general trend

Motors, as key equipment for the conversion of electrical energy and mechanical energy, are widely used in the manufacturing industry such as mining, metallurgy, oil and gas, petrochemical and other industries. Growth is also highly correlated with the prosperity of the manufacturing industry. According to data from the National Bureau of Statistics, the sales revenue of domestic motors above designated size reached 642.75 billion yuan in 2020 (taking into account the low concentration of some areas of the motor industry, the overall market size is actually larger), and the proportion of industrial motors in motors is About 75%. As the recovery of my country's manufacturing industry and the global economic recovery continue to advance, my country's demand for industrial motors is expected to further expand.

According to our calculations, energy-saving motors are more economical. Taking the main motor of the coal grinding system in the cement industry as an example, according to the literature "A Brief Discussion on the Application of Permanent Magnet Synchronous Motors in Energy Saving in the Cement Industry", the original asynchronous motor used for coal grinding in a large cement company was low in efficiency, malfunctioned, and leaked oil. Frequent occurrences affect production efficiency. After replacing the permanent magnet motor at a cost of 600,000 yuan, (not taking into account the reduced reactive power compensation fee) the annual electricity saving reaches 581,000 kilowatt hours, saving 268,000 yuan in electricity bills (priced at 0.5 yuan) and 20,000 yuan in maintenance costs each year, 2.24 The cost can be recovered in a year.

As the carbon neutrality policy continues to advance, the excellent performance of rare earth permanent magnet motors is constantly mentioned in the policy, and the degree of attention continues to increase. For example, the "Motor Energy Efficiency Limit Values ​​and Energy Efficiency Levels GB18613-2020" released in 2020 requires that the measured efficiency of each level of motors at rated output power should be no less than Level 3. my country's current stock of industrial motors is still mainly based on Level 3 standards. After implementing Level 2 standards, the overall efficiency needs to increase by 3%-4%. According to the "Motor Energy Efficiency Improvement Plan (2021-2023)", the target annual output of high-efficiency motors in 2023 is 170 million kilowatts, which can achieve annual power savings of 49 billion kilowatt hours, which is equivalent to annual savings of 15 million tons of standard coal, or 0.5 of the Three Gorges Power Station. Power generation.

In the medium and long term, energy-saving motors are expected to grow rapidly and become another growth pole of demand for rare earths in addition to new energy vehicles. It is estimated that the global consumption of praseodymium and neodymium oxide in energy-saving motors from 2021 to 2025 will be 7605, 12206, 18326, 22009, and 26015 tons respectively, and the five-year CAGR is expected to be as high as 36.0%.

.3.4 Wind power: Energy transformation is imminent, and the increase in wind power installed capacity will drive demand for rare earths.

Under the guidance of the "carbon neutrality + carbon peak" goal, the installed capacity of wind power is expected to remain high and the industry will maintain high prosperity. The "Notice on Matters Concerning the Development and Construction of Wind Power and Photovoltaic Power Generation in 2021" issued by the National Energy Administration clearly states that the total installed capacity of wind power and photovoltaic power will reach at least 1.2 billion kilowatts by 2030. Assuming that wind power accounts for 50% of it, then It needs to grow by 600GW in ten years, with an average annual growth rate of 60GW. After wind power subsidies are withdrawn, the motivation for operators to build new wind power may come from the continued reduction in power generation costs and the increase in profits from the development of the carbon trading market.

At the same time, the increase in the penetration rate of direct-drive permanent magnet fans is expected to alleviate the impact of the decline in installed capacity caused by the reduction of wind power subsidies. The generators of wind turbines mainly include three technologies: doubly-fed, direct-drive, and semi-direct-drive. Compared with doubly-fed generators, direct-drive permanent magnet generators have the advantages of low maintenance cost, high efficiency, and good grid compatibility. , the penetration rate in wind turbines is expected to gradually increase in the future. It is currently only about 30%, and is expected to increase to 40% or even higher in the future.

semi-direct drive wind turbine uses a structure similar to a doubly-fed motor. The high-speed gearbox is removed from the gearbox group and only a medium-low speed gearbox is installed. NdFeB is still used, but the amount is compared to that of a direct-drive motor. reduce. Wind power generation has a rated speed, and its rotor must reach a certain speed before it can generate electricity. The rated speed is directly proportional to the current frequency and inversely proportional to the number of magnetic pole pairs. The number of magnetic pole pairs determines the amount of rare earth used. Taking China as an example, the current frequency is fixed at 50Hz. For a direct-drive motor, the number of magnetic pole pairs is 50-100. The required rated speed is very low. The speed of the blades is sufficient to meet the requirements, so there is no need to modify the rotor. processing speed.The doubly-fed motor has only 2-4 pairs of magnetic poles and does not use permanent magnets. The corresponding rated speed is higher. It is accelerated through high-speed gearboxes and medium-low speed gearboxes to obtain a speed sufficient to match the rated speed. Semi-direct drive is somewhere between the two. It only uses medium and low-speed gearboxes, and its magnetic poles still use permanent magnet poles. However, due to the use of gearboxes, the corresponding number of pole pairs is smaller than that of direct drive. Reduce the use of rare earths. We assume that the medium and low-speed gearbox can increase the speed by 5 times, and the required amount of NdFeB is 1/5 of that of the direct drive. Direct-drive and semi-direct-drive permanent magnet wind turbines each have their own advantages and disadvantages. It is expected that they will complement each other in the future and are not substitutes. The advantage of the semi-direct drive motor is that it reduces weight and is easy to install. However, its structure is similar to the doubly-fed motor, and it still has a medium and low-speed transmission gearbox, so the maintenance cost is still higher than that of the direct-drive motor. In the future, it is expected to be used as a supplement rather than a replacement for direct drive. At present, direct drive permanent magnet wind turbines have a large demand for NdFeB. The semi-direct drive type uses medium and low-speed gearboxes, which can reduce the use of some magnetic materials. However, due to the lack of doubly-fed high-speed gearboxes, it still needs For a certain amount of NdFeB, the increase in permeability of both will drive the accelerated expansion of the usage of rare earth praseodymium and neodymium.

4.3.5 Other fields: Increase the volume at multiple points, demand continues to grow

Traditional automobiles: There is room for improvement in the amount of rare earths used in bicycles. It is generally believed that in traditional automobiles, NdFeB is mainly used in EPS and ABS products, namely electronic power steering systems and anti-lock braking systems. The amount of NdFeB used in a bicycle is approximately 0.25 kg. In fact, flat and centrifugal permanent magnet stepper motors are accelerating their penetration into automobile speedometers and ventilation systems; automobile steering wheel torsion sensors, oil pump motors, seat adjusters, fans and other components are also gradually transitioning to NdFeB permanent magnets. , At this stage, mid-to-low-end NdFeB products already have a relatively high penetration rate, and high-performance NdFeB products will also accelerate their replacement in the future. We estimate that the global consumption of praseodymium and neodymium oxides in traditional automobiles from 2021 to 2025 will be 5881, 6540, 7260, 8044, and 8898 tons respectively, with a CAGR of 10.9% from 2021 to 2025.

Air conditioners: only first-level energy efficiency standards are required to gain market access, and variable frequency air conditioners are experiencing substantial growth. The penetration rate of variable frequency air conditioners has increased significantly. From July 1, 2020, my country has officially begun to implement the GB21445-2019 "Energy Efficiency Limit Values ​​and Energy Efficiency Levels of Room Air Conditioners" standard, which for the first time unifies the energy efficiency evaluation system of variable-frequency fixed-frequency air conditioners. Under the new energy efficiency standard system, the original three-level energy efficiency fixed-frequency air conditioners, variable frequency air conditioners, and the original two-level energy efficiency standard single-cooling fixed-frequency air conditioners do not meet the market access threshold. The penetration rate of inverter air conditioners in 2020/2021 is 57.5%/69.2%, an increase of 12.1/11.7pct respectively, while the previous penetration rate growth was only 1-2%. It can be seen that due to policy pressure, the penetration rate of inverter air conditioners is rapidly increasing. The penetration rate of rare earth permanent magnet variable frequency compressors in variable frequency air conditioners will also increase rapidly. Inverter air conditioner compressors are divided into ferrite inverter air conditioners and rare earth permanent magnet inverter air conditioners. Under the new energy efficiency standards, it is difficult for ferrite inverter air conditioners to meet the first-level energy efficiency standards, so it is difficult to obtain subsidies, such as Beijing's first-level energy efficiency standards. Subsidy is 400-800 yuan/unit.

Elevator: The renovation policy of old residential areas has promoted a high increase in demand for elevators. In 2018, the government work report stated that the installation of elevators in residential areas was "encouraged to install elevators if conditions permit"; in 2019, the description was changed to "support the installation of elevators"; in May 2020, the 13th National People's Congress was held , this government work report clearly stated that “39,000 old urban residential areas have been newly renovated, supporting the installation of elevators, and the development of diverse community services such as dining and cleaning.” Since then, the renovation and installation of elevators in old residential areas has begun on a large scale across the country, which is expected to drive demand growth in the elevator market. The elevator industry has a new trillion-dollar market space and is expected to usher in rapid growth. According to data from the Ministry of Housing and Urban-Rural Development, there are 170,000 old urban communities in need of renovation across the country. It is conservatively estimated that if a community needs to install 10 elevators, at least 1.7 million elevators will need to be installed, which will bring an additional RMB 700 billion to the elevator market. the space above.

Elevators consume a lot of electricity, and there is a strong demand for energy saving in the dual-carbon background. If the drive system uses a permanent magnet synchronous traction motor, it can save about 30% of electrical energy. Therefore, permanent magnet synchronous traction machines are the main choice for elevator drive hosts. The selection rate for passenger elevators is nearly 100%, and the overall penetration rate in 2018 was about 92%. The traction machine is a component of the elevator traction drive system. It is mainly responsible for outputting and transmitting power and driving the elevator to operate. It is one of the most important components of the elevator. Almost all new passenger elevators currently use permanent magnet synchronous traction machines, while some freight elevators choose the more economical permanent magnet asynchronous traction machines. According to Zhiyan Consulting data, each energy-saving elevator equipped with a permanent magnet synchronous traction machine consumes approximately 6kg of high-performance NdFeB. It is estimated that the consumption of praseodymium and neodymium oxides in the global energy-saving elevator business from 2021 to 2025 will be 4001, 4295, 4614, 5016, and 5454 tons respectively, with a CAGR of 8.1% from 2021 to 2025.

4.4 Supply and demand balance: Supply and demand are tightly balanced, and rare earth prices are expected to remain high for a long time

We predict that due to increased demand, global praseodymium and neodymium oxides will face a large supply and demand gap in the future. In the short term, the supply and demand gap will reach 6,767 tons in 2022, and the supply and demand gap ratio will be 8.3%. In the long term, full consideration will be given to indicator growth (from 2021 to 2025, the total annual growth rate of mining indicators is 20%), recycling (accounting for about 20% of total supply), Mt Weld and Mt Pass mine capacity utilization increases, monazite Due to the increased volume and the increment brought about by the successive commissioning of multiple mines in the future from 2023 to 2025, the supply and demand gap will still be 4,580 tons in 2025, and the supply and demand gap ratio will be 3.4%.

Investment Analysis

5.1.1 Tibet Mining: The equity payment method has been implemented, and the development of Zabuye Salt Lake has been accelerated.

The equity payment is included in intangible assets and has limited impact on the company's current operating performance. The equity fee from the transfer of mining rights will be accounted for as intangible assets, and will be recovered through the amortization of intangible assets every year thereafter, which will have a limited impact on the company's current performance. The main funds for the payment of equity funds this time come from bank loans and the company's own funds. According to the company's first quarter report of 2022, the company holds 1.218 billion yuan in monetary funds, the asset-liability ratio is about 15%, and the available bank credit limit is sufficient. In addition, the Tibet region Bank loan interest rates have great advantages, and loans can reduce financial pressure. In 2022, benefiting from the strong downstream demand and the sharp increase in market prices of lithium and chromium products, the company's full-year profits are expected to further increase, and operating cash flow is expected to increase significantly.

promotes the continuation of Zabuye mining rights and lays the foundation for accelerated development of the salt lake. The 20-year mining right of Zabuye Salt Lake was legally obtained by Zabuye Lithium High-tech Co., Ltd. on September 2, 2002, and the mining validity period is until September 2, 2022 (1954 Beijing coordinate system). In May 2011, according to the requirements of relevant industry departments, the coordinates had to be converted to the 1980 Xi'an coordinate system. Therefore, Zabuye Lithium High-Tech renewed its mining license and the validity period was changed to May 5, 2022. According to relevant regulations, the company needs to complete the payment of proceeds from the transfer of mining rights to the Zabuye Salt Lake deposit in Tibet when processing the renewal registration of mining rights. Therefore, signing the "Payment Contract" for the revenue payment will further promote the renewal registration of the mining rights of the Zabuye Salt Lake deposit in Tibet.

As a leading company in salt lake development strategy, its lithium-chromium business has entered into rapid growth. Chromium business: 98% of my country's ferrochrome resources rely on imports, and the company controls the Luobusha Chromite Mine, the largest chromite mine in the country. Driven by the sharp rise in prices, the company's chromium business gross profit margin is as high as 70% in 2021. Benefiting from improvements in mining processes, chromium ore production has doubled from 67,000 tons to 140,000 tons. Lithium business: The lithium grade of Zabuye Salt Lake ranks second in the world. According to feasibility study calculations, the complete cost of the second phase project after deducting depreciation and various expenses is 42,500 yuan/ton, and the cost advantage of extracting lithium is significant. After Baowu moves in, it will fully support listed companies in terms of capital, technology, management, etc., and the development of Zabuye Salt Lake will be greatly accelerated. The current second phase project is progressing smoothly, and 12,000 tons of lithium salt production capacity is expected to be completed and put into operation in mid-2023. According to the company's plan, it is expected that a lithium salt scale of 30,000-50,000 tons will be formed in 2025.

5.1.2 Tianqi Lithium Industry: Price and volume have both risen and performance has surged. The lithium resource giant is back.

has the world's best quality lithium mines and salt lake resources, creating a deep moat. (1) Resource layout: With the world's largest Greenbush lithium mine as the base and Sichuan Yajiang Cuola lithium mine as resource reserves, we have invested in SQM to lay out the world's best quality salt lake resources, and we have invested in Zabuye Salt Lake to lay out the best quality salt lake resources in China. A large salt lake has created a deep moat and at the same time achieved self-sufficiency in lithium raw materials. (2) Rapid expansion of high-quality resource production capacity: Greenbush is expected to achieve full production capacity in the second phase this year, and the long-term chemical grade lithium concentrate production capacity is expected to reach more than 2.5 million tons/year; Atacama Salt Lake plans to expand production to 210,000 tons of carbonic acid in 2023 Lithium and 40,000 tons of lithium hydroxide production capacity; Zabuye is expected to expand production to no less than 30,000 tons of LCE/year production capacity in 2025, and the company's growth is expected.

Hong Kong stocks are about to be issued, and the smelting capacity will expand rapidly. (1) The company’s previous production capacity construction progress. Due to stagnant debt and funding issues, the company’s Hong Kong stock issuance is currently in progress, and it is expected to resolve the merger and acquisition loan debt in one go. (2) The company's production capacity under construction is expected to expand rapidly: the smelting production capacity currently under construction is mainly the Sichuan Suining Anju Project (expected to be completed in the second half of 2023 and enter the commissioning stage), Chongqing Tongliang Lithium Metal Factory (the first phase is expected to be completed in 2023) and Australia The Kwinana lithium hydroxide plant (the first phase is expected to reach production by the end of 2022), the company's medium-term planned lithium chemical product production capacity totals more than 110,000 tons/year, and will usher in rapid expansion.

5.1.3 China Mining Resources: Transformation from smelting to resources

Bikita After the reconstruction and expansion, the company's total mining and processing capacity reached 3.32 million tons. The company's original Tanco mine in Canada has a raw ore production capacity of 120,000 tons/year. The Bikita mine acquired in 2022 has an original production capacity of 700,000 tons/year, which is equivalent to 90,000 tons of lithium feldspar concentrate (Li2O4.3%). After the completion of the 120-ton expansion project, 90,000 tons of lithium feldspar and 67,000 tons of mixed concentrates (spodumene, eucryptite, etc., Li2O4.3%) will be added to the production capacity; the new 2 million tons project can achieve an annual average It produces approximately 300,000 tons of spodumene concentrate (Li2O 5.5%), 90,000 tons of lepidolite concentrate (Li2O 2.5%), and 0,300 tons of tantalum concentrate. The company will have a total lithium ore processing capacity of 3.32 million tons/year in 2023, which can fully meet the supply of 60,000 tons of lithium salt.

actively develops lithium resources and locks in high profits from the entire lithium salt industry chain. In terms of ensuring the supply and development of lithium resources, the company has a multi-dimensional layout: 1) The company's Tanco mine has Li2O reserves of 112,200 tons and the average Li2O grade is 2.45%. The Bikita mine acquired in 2022 has Li2O reserves of 344,000 tons and the average Li2O grade. 1.17%; 2) Cooperate with Shengxin Lithium Energy to establish a joint venture Harare Lithium Industry in Zimbabwe. Relying on the company’s leading exploration technology and financial support from two major listed companies in the lithium industry, the development prospects of high-quality lithium resources in Africa are promising. Phase; 3) The company's subsidiary Hong Kong Sinomine Rare signed an "Underwriting Agreement" with PWM, thereby obtaining the underwriting rights for all lithium, cesium and tantalum products in the Case Lake project of Canadian Power Metals Company. The results of the company's resource layout will gradually show. We estimate that the company's self-supply rate of battery lithium salt resources can reach 30%, 72%, and 100% from 2022 to 2024. As the company's industrial chain profits shift upstream, the lithium salt industry will gradually be locked in the future. The profits of each link in the chain can fully enjoy the growth dividends of the lithium salt industry.

5.1.4 Yahua Group: The resource layout is advancing steadily, and it is optimistic about the release of lithium hydroxide under the 4680 system.

Civilian explosions serve as shields and lithium salts serve as spearheads. The increase in both volume and price of lithium business will help the company's performance growth. The 2022 semi-annual performance forecast was released on June 6. The company expects net profit attributable to parent companies in 2022H1 to be 2.122 billion yuan to 2.372 billion yuan, a year-on-year increase of 542.79% to 618.52%. Looking at a single quarter, the company's 2022Q2 net profit attributable to the parent increased by 7.63%~32.09% month-on-month; net profit after deducting non-attributable shares increased by 7.19%~31.82% month-on-month, significantly exceeding our previous expectations.Reasons for changes in 22Q2 performance: 1) Price rise: The average price of lithium salt in Q2 2022 increased month-on-month. According to data from Asian Metal, as of June 6, the average prices of battery-grade lithium carbonate and lithium hydroxide Q2 to date have increased compared with 22Q1. 11.5%, 28.7%, and the company's main product is lithium hydroxide. The company benefited more from the increase in the average price of lithium salt in Q2. 2) Sales volume: The demand for lithium salt products continues to grow, and the company seizes market opportunities to increase the production and sales of lithium salt products.

The global lithium resource layout continues to improve, lithium salt smelting and production expansion are steadily advancing, and lithium resources are expected to be self-sufficient in the long term. The company's long-term lithium salt production capacity is planned to be more than 100,000 tons, and the expansion of production is steadily advancing; at the same time, it is deploying lithium resources globally. We estimate that the company's future locked lithium mines have reached 695,000 to 895,000 tons/year (about 87,000 to 112,000 tons LCE ), long-term lithium resources are expected to fully match the smelting capacity. The company's lithium resource layout includes: 1) Lijiagou: Participate in 37.25% of the Lijiagou Lithium Mine (equivalent to 510,000 tons of lithium oxide reserves), and have priority supply rights. It is expected that Commenced production in the second half of 2022; 2) Core: Participated in 4.18% equity stake in Australian Core Company and signed a lithium concentrate underwriting agreement (75,000 tons of lithium concentrate/year); 3) Participated in 5.01% equity stake in Australia Eastern Resources Company, Australia EV Resources Company 9.5% equity to cooperate in the development of lithium resources; 4) Renew the lithium concentrate underwriting agreement with Galaxy Lithium until 2025, providing an annual supply of no less than 120,000 tons of lithium concentrate. 5) Participate in 3.4% of the shares of ABY Company, and underwrite no less than 120,000 tons of lithium concentrate per year; 6) Subscribe for the equity of Ultra-Lithium Company, control the Fulgen Lake and Georgia Lake projects, and will build the first phase of 200,000 tons/year lithium concentrate in the future Mineral production capacity. (Report source: Future Think Tank)

5.1.5 Yongxing Materials: Focusing on the dual main businesses of "new materials + new energy", the expansion of lithium salt production capacity is expected in the future.

Special steel and new materials are developing steadily, and the lithium battery sector constitutes an important growth point for profitability. The company's lithium battery new energy segment has built a new energy industry chain covering the three major businesses of mining, mineral processing, and lithium carbonate processing. It uses lithium-containing porcelain stone from the Huashan Porcelain Stone Mine as the main raw material, and produces lepidolite concentrate through mining and selection. After deep processing, battery-grade lithium carbonate is produced and eventually sold externally. The company currently has a battery-grade lithium carbonate production capacity of 10,000 tons, and a 20,000-ton battery-grade lithium carbonate project under construction may be put into production in 2022. By then, lithium salt production is expected to continue to increase, and the company will transform into a dual main business of "new materials + new energy" drive.

's high-quality customer resources will further improve the stability of the lithium battery new energy business and promote the company's sustainable development. At present, the company has achieved batch supply to leading customers in the fields of lithium iron phosphate, ternary materials, lithium manganate, etc. Customers include Xiamen Tungsten New Energy, Hunan Yuneng, Defang Nano, etc., and other leading companies in the industry have also Sample certification, factory audits and long-term cooperation negotiations have been carried out.

5.1.6 Salt Lake Shares: The "ballast stone" for the security of China's lithium and potassium resources, opening up room for growth.

fulfills its "responsibility of ensuring supply" and expands production at the right time. (1) The company has currently formed a "1+2+3" lithium carbonate production capacity of a total of 60,000 tons. Among them, the first and second phases of Lanke Lithium Industry have a total production capacity of 30,000 tons of lithium carbonate. The company's 3 joint ventures with BYD The production capacity of 10,000 tons is still in the pilot stage. (2) The company announced on May 26 that in order to accelerate the construction of a world-class salt lake industry base, implement the company's "14th Five-Year Plan" ecological salt lake industry development plan "expanding lithium" strategic deployment, and extend the lithium industry chain, it plans to invest in a new 40,000 tons/ The annual basic lithium salt integration project has a total investment of approximately 7.081574 million yuan. After the expansion of 40,000 tons of production capacity, the company is expected to have a total lithium salt production capacity of 100,000 tons in the future. As the well-deserved leader of the domestic lithium and potassium industry chain, it will gradually assume the "responsibility of ensuring supply" in the future. We expect that the equity production capacity The scale is around 70,000 tons, and there is room for long-term growth. The investment in the construction of

is relatively large, but the company is expected to achieve good economic benefits with low-cost expansion. The company's total investment in this expansion is approximately 7.082 billion yuan, including 6.759 billion yuan in construction investment, 125 million yuan in working capital, and 198 million yuan in loan interest during the construction period. The construction period is 24 months. Based on this, it is expected to be realized in 2024 reached production capacity.From the perspective of capital expenditure per ton, the company's investment per ton is 177,000 yuan, which is generally at a relatively high level. We judge that it may be related to the large expenditure on front-end equipment and auxiliary facilities. However, from the perspective of return on investment, the company's current production of Lanke Lithium has proven that the company's current adsorption technology is mature. The complete cost of a single ton of lithium carbonate is only about 40,000 yuan. It is profitable under the high lithium price and the payback period of the investment cost. It is shorter and has better economic benefits.

5.1.7 Huayou Cobalt: Determined to increase the layout of nickel and cobalt resources, and the future growth curve will be steeper

Increase the layout of the Indonesian wet nickel project, and the long-term nickel resources are expected to be self-sufficient. (1) Project details: The total investment of the Huashan nickel and cobalt wet process project with an annual output of 120,000 tons is approximately 15.96 billion yuan. It is planned to invest 12.2 billion yuan in raised funds. The project construction period is 3 years and it can actually produce hydrogen oxide. The nickel and cobalt intermediate products are 326,000 tons/year, which is equivalent to 123,000 tons/year of nickel metal and 15,700 tons/year of cobalt metal; there is also about 506,000 tons/year of chromium concentrate as a by-product of mineral processing. The investment in nickel production capacity per ton is about 129,800 yuan, which is low in the industry. (2) Shareholding ratio: Huatuo International, a wholly-owned subsidiary of the company, holds 68% of the shares, and its partner Glaucous (actually Tsingshan Group) holds 32%. Further cooperation with Tsingshan is expected to ensure the future of nickel mines. Supply; (3) Nickel production capacity planning: The company's current nickel projects completed, under construction and planned production capacity are "6+4.5+12+12+12" totaling 465,000 tons (including cooperation projects with Vale and Volkswagen Group). With this project, the nickel production capacity is expected to reach 585,000 tons in the future, and nickel resources are expected to be self-sufficient. The investment in the

project is relatively large, but the return on investment is substantial. The controlling shareholder's subscription demonstrates confidence in future development. (1) Although the investment amount of this private placement project is relatively large, according to the company’s feasibility analysis report, the internal rate of return of this nickel project is 18.14% (after income tax), and the expected investment recovery period (after income tax, including the construction period ) is 7.74 years. The internal rate of return of the lithium smelting project is 36.51% (after income tax). The estimated investment payback period (after income tax, including the construction period) is 4.73 years. The overall economic benefits are good. (2) The company’s controlling shareholder promises not to subscribe for more than 510 million yuan in this issuance, and at the same time prevents the substantial dilution of the equity ratio, demonstrating confidence in the future.

5.1.8 Shengtun Mining: Rapid expansion of production capacity, integrated layout blueprint quietly blooming

Downstream materials are steadily expanding, and the customer market is gradually opening: Kelixin (Cobalt Deep Processing) will complete technical transformation in 2021, and actively carry out certification of downstream large-scale enterprises. The company Signed a strategic cooperation framework agreement with Xiamen Tungsten New Energy, and the downstream customer market is gradually opening up. In 2022, the output of high-end products will be no less than 3,000 tons; the focus will be on promoting 300,000 tons of nickel sulfate, 300,000 tons of iron phosphate, and 10,000 gold tons of cobalt in Guizhou. In terms of battery materials construction, the first phase of 150,000 tons of nickel sulfate will be put into production in the first half of 2023, and the second phase of construction will be launched as soon as possible. There is great potential for increasing resource reserves, and upstream management and control capabilities have been enhanced. The company’s Kalongwei copper and cobalt mine project has copper reserves of 302,000 tons, with an average grade of 2.7%, and cobalt metal volume of 42,700 tons, with an average grade of 0.62. The Kalongwe project is located at the western edge of the giant Congo-Zambia copper mineralization belt in Central Africa and has good prospecting prospects. The FTB mining area is also adjacent to a number of world-class large-scale mines and historical production mining areas. The FTB project is currently under exploration. The main ore types include copper, cobalt, lead, and zinc, and it also has great prospecting potential.

5.1.9 Northern Rare Earth: low cost + high growth, the leading position of rare earths is stable at a low level

The leading position of light rare earths is stable. Northern Rare Earth is the largest supplier of light rare earth products in China and even the world, and has an industrial chain with coordinated upstream and downstream development. The company purchases Baotou Steel's rare earth concentrates at low prices in the upstream, and has built a complete rare earth industrial system in the midstream and downstream including smelting and separation, deep processing, and application products. It mainly produces and operates rare earth raw material products, rare earth functional products, and some rare earth terminal application products. As of the end of 2021, the company has a smelting and separation capacity of 120,000 tons/year and a rare earth metal production capacity of 16,000 tons/year. The rare earth raw material production capacity ranks first in the world; the magnetic material alloy among rare earth functional materials is 41,000 tons/year.Rare earth oxides, rare earth metals and magnetic materials are the company's main profitable sectors, contributing more than 90% of gross profit in total.

Low cost + high growth, the rare earth leader sets sail. ① Stable low-price rare earth concentrate supply creates low-cost barriers. The company has long purchased rare earth concentrates from Baotou Steel Co., Ltd. owned by the same actual controller at an agreed price. The supply is stable and the price is lower than the market price all year round. Although rare earth prices have increased significantly, the negotiated price is still lower than the market price of concentrates, and the company still has a cost advantage. ② Monopolize the increase in light rare earth quotas and continue to grow production. With the rapid growth in demand, the growth rate of the rare earth quota center is expected to increase significantly, and may grow at an annual growth rate of 20% in the future. According to historical data, it is expected that about 96% of the increase will be given to Northern Rare Earth, and the company's indicators account for nearly 10% of the increase. The total indicator is 60%, so the company's output growth rate may continue to maintain above 30%. ③The listing price has strong guiding significance and the company's performance is more certain. Since the beginning of 2022, the listed prices of the company's products have remained stable at a high level, anchoring the selling prices of rare earths. Therefore, the fluctuations in the selling prices of the company's products are gradually decreasing, and as the volume continues to grow, the company's performance certainty is greatly improved. ④ Strengthen the layout of rare earth functional materials and strengthen the advantages of integration. The company is gradually clearing out inefficient assets and at the same time expanding production of downstream deep-processing products, gradually increasing the added value of its products.

5.1.10 Shenghe Resources: Global rare earth resource layout, high performance flexibility

The company has a strategic layout of rare earth resources at home and abroad, and adheres to a diversified raw material supply strategy. ① Domestically, the company has a trusteeship relationship with Sichuan Hedi Mining Development Co., Ltd. and its shareholders for the Daluchao rare earth mine, and has stakes in Mianli Rare Earth and Shandong Gangyan Chalco Rare Earth Technology Co., Ltd., which is the company’s basic supply of rare earths. ② Globally, the company has a business cooperation relationship with MP Company, the main operator of the Mountain Pass rare earth mine in the United States. The underwriting agreement was successfully renewed in early 2022 and the scope of cooperation was expanded to other products in addition to rare earth concentrates. In addition, the company also invested in Australian Greenland Company and Peak Rare Earth Company and became its largest shareholder. ③The company has also actively expanded in the field of seaside sand mining and actively prepared raw materials in advance for the expansion of seaside sand mineral processing capacity.

has an integrated layout from mining to smelting, fully enjoying the high price flexibility of rare earths. ① Rare earth mines: The company insists on ensuring the supply of raw materials through multiple channels at the mine end. ② Rare earth smelting and separation. Currently, the company has two rare earth smelting and separation bases in Sichuan (8,000 tons) and Jiangxi (7,000 tons), with a total production capacity of 15,000 tons. Sichuan uses light rare earth ores as the main raw materials, and Jiangxi uses southern ionic rare earth ores, monazite chloride flakes, neodymium iron boron and phosphor waste as the main raw materials. There are also licenses for rare earth waste recycling in Vietnam. The company is currently promoting the construction of a new rare earth smelting and separation production base in Lianyungang City, Jiangsu Province, and is expected to further increase its production capacity by 5,000 tons. In addition to the projects it leads, the company invested in Guangxi Yuxiao Xijun (20%, separated production capacity of 5,000 tons) and Hengyang Gudao New Materials (39%, separated production capacity of 5,000 tons) in the first half of 2021. ③Rare earth metals. At present, the company has rare earth metal processing plants in Sichuan, Jiangxi, Vietnam and other places. It mainly processes the company's self-produced and purchased rare earth oxides into rare earth metals for external sales. It will also engage in processing of supplied materials according to market conditions. It is expected that Sichuan Kebairui's production capacity will increase from 3,000 tons to 9,000 tons, and Ganzhou Chenguang's production capacity may increase from 8,000 tons to 12,000 tons.

5.1.11 Earth Bear: Deeply bound to Northern Rare Earth, three major bases are expanding production capacity in parallel

The company focuses on the research and development, production and sales of high-performance sintered NdFeB permanent magnet materials. The company's high-performance sintered NdFeB permanent magnet materials have the characteristics of high magnetic performance, excellent service characteristics, and good stability. They are mainly used in energy-saving, environmentally friendly, and intelligent manufacturing fields such as the automotive industry, industrial motors, and high-end consumer electronics, such as automotive EPS, New energy vehicles, wind power, energy-saving motors, energy-saving home appliances, industrial robots, 5G, 3C products and other fields. Energy-saving motor policies have boosted demand for NdFeB magnetic materials, and the company is focusing on industrial motors and is expected to benefit from the industry boom.On November 22, 2021, the Ministry of Industry and Information Technology and the State Administration for Market Regulation issued a notice on the "Motor Energy Efficiency Improvement Plan (2021-2023)". The notice proposes that by 2023, the annual output of high-efficiency and energy-saving motors will reach 170 million kilowatts, and the proportion of high-efficiency and energy-saving motors in service will reach more than 20%, achieving annual electricity savings of 49 billion kilowatt hours, equivalent to annual savings of 15 million tons of standard coal, and reducing carbon dioxide emissions. 28 million tons. The company's industrial motor operating revenue accounted for 54.31% in 2020. Customers in the industrial motor field include well-known domestic and foreign companies such as CRRC, Schaeffler of Germany, Siemens of Germany, Black & Decker of the United States, Makita of Japan, Panasonic of Japan, and CIK of Japan. Energy-saving motor policies may significantly boost demand for NdFeB magnets, and the company will benefit from the industry boom.

's production capacity growth is clear, opening up space for performance growth. At present, the company has three major sintered NdFeB production bases in Lujiang, Baotou and Ningguo in Hefei. The existing overall production capacity of sintered NdFeB is 6,000 tons/year; the overall production capacity is expected to reach 8,000 to 10,000 tons/year by the end of 2022; it is expected that by the end of the "14th Five-Year Plan", the planned production capacity will be around 21,000 tons, of which: Hefei Lujiang 8,000 tons/year year; Baotou 8,000 tons/year; Ningguo 5,000 tons/year.

company has deepened cooperation with Northern Rare Earth to ensure a stable supply of raw materials. In August 2021, the company and Northern Rare Earth jointly increased their capital in the joint venture Northern Rare Earth Anhui Company by 90.36 million yuan in the same proportion (Northern Rare Earth invested 60% and the company invested 40%) to expand the production capacity of NdFeB rapid-setting thin strip alloy sheets. . Northern Rare Earth Anhui Company is the company's largest raw material supplier and mainly provides NdFeB rapid-setting thin strip alloy flakes to the company. This deeply binds Northern Rare Earth and maintains a stable supply of raw materials.

(This article is for reference only and does not represent any investment advice on our part. If you need to use relevant information, please refer to the original text of the report.)

Selected report source: [Future Think Tank]. Future Think Tank - Official website