Review and Outlook of China’s Lithium Market

In 2011 China’s lithium carbonate output was about 30000 tonnes. In 2012, China’s lithium carbonate output (including battery grade lithium carbonate) was 35000 tonnes, up by 17% on Y-o-Y basis.

(1) Capacity of Ganfeng Lithium expanded considerably

The company enjoys obvious technological advantages, its organic lithium deep processing products with high gross profit margin expanded significantly in 2012; metal lithium increased from 400 tonnes to 650 tonnes, up by 62.5%; butyl lithium grew from 75 tonnes to 225 tonnes, up by 200%. The newly added capacity entered concentrated launching period in the third quarter of the year, both production and sales increased to bring performance growth.

In 2012, the construction and acceptance work of all the company’s projects constructed with raised funds proceeded smoothly. By June, the company’s 650 t/a metal lithium and lithium product production line technology upgrading project, and newly built 150t/a butyl lithium production line project both were completed and started production; the production base of excessive raised fund project namely the 10000 t/a lithium salt production line project has finished land requisition, at present it is purchasing equipment for civil engineering construction.

(2) Galaxy Lithium Industry’s carbonate lithium production line started production

Galaxy Lithium Industry is a carbonate lithium manufacturer with an exclusive foreign investment of USD 100 million. The company has formally begun to sell battery grade carbonate lithium products in July 2012, design capacity of 17000 tonnes of battery grade carbonate lithium with 99.5% above purity.Galaxy Resources owns Mount CattlinSpodumene Mine in Western Australia. In 2011 the Mount Cattlin Project produced 63900 tonnes of spodumene, with a grade of 6.28%, which was mainly supplied to carbonate lithium processing factory in Zhangjiagang. In 2012 Galaxy Resources acquired Canada James Bay Spodumene Mine and Argentina Sal de Vida Salt Lake Lithium Mine.

(3) Tibet Urban Development & Investment developed Jieze Chaka Salt Lake

In January 2012, the company signed “Cooperation Framework Agreement” with its strategic partner Shaanxi Xixian New Area Jinghe New Town Management Committee, which prescribed terms on relevant matters concerning the construction of large lithium deep processing factory in Xixian New Area JingheNew Town, this project’s total investment (including early stage processing) will top RMB 1.5 billion yuan, and will ultimately develop 40000 tonnes of high purity lithium production capacity.

In 2012, its subsidiary Guoneng Mining will focus efforts to complete sale field construction and water injection for Jieze Chaka Salt Lake, the construction is scheduled to start in the first half of the year, and inject water at the end of the year, which will make substantial progress for solar evaporation.

(4) Minmetals Salt Lake Co., Ltd’s Qinghai lithium ore resource integrated utilization project started construction

On October 19, 2012, the “China Minmetals Group – Minmetals Salt Lake Co,, Ltd – Yiliping Salt Lake Lithium Mine Lithium, Boron and Potassium Integrated Utilization Project”, a key project of Qinghai Province, started construction in Yiliping Lake area.

According to news sources, this project’s overall planning construction size is a scaled development projects matching the resource reserve of Yilipin Salt Lake including 30,000-50,000 t/a carbonate lithium, 10,000 t/a boric acid, 500,000 t/a potassium chloride, 1 million t/a magnesium building materials. Because of the huge scale, it will be constructed in phases. Wherein, the early stage project scale is 10,000 t/a lithium carbonate, 10,000 t/a boric acid, and 300,000 t/a Potassium Chloride. The early stage project has a total investment of 3.38 billion yuan, the project is scheduled to be completed and launched into production at the end of 2015.

(5) Luxiang Co., Ltd fully controls Rongda Lithium

On October 22, Luxiang published major asset restructuring report draft, it planned to add 15.109 million shares through private placement from Guangzhou Youngy and Zhang Changhong at a price of 17.54 yuan per share to buy 49% equity of Rongda Lithium. Because the company previously held 51% equity of Rongda Lithium, after this transaction was completed, it would hold 100% equity of Rongda Lithium.

Rongda Lithium’s main product is lithium concentrate, which is mainly used to produce battery grade and industrial grade lithium hydroxide and carbonate lithium; it can also be used in ceramic industry and glass industry. In 2011, Ringda Lithium produced 195,000 tonnes of raw ore in the whole year, and produced 31,600 tonnes of lithium concentrate. With the full release of Rongda Lithium’s capacity and the completion of its 1.05 million t/a spodumene ore dressing engineering expansion project, it is expected Rongda Lithium’s profit-earning ability will be further improved.

Between January and November 2012, China’s import of carbonate lithium was 12,402 tonnes, export was 2756 tonnes, net import was 9647 tonnes, benefiting from growth in domestic demand, the import volume increased significantly. At same period, China’s export of lithium hydroxide was 2987 tonnes, export amount was USD 19.83 million; export of lithium chloride was 324 tonnes, export amount was USD 1.77 million. Between January and November, China’s import of lithium hydroxide was 291 tonnes, import amount was USD 1.44 million, import of lithium chloride was 2400 tonnes, import amount was USD 9.98 million.

The downstream demand of global lithium industry is about 140,000 tonnes of carbonate lithium equivalent, China’s demand is 54,000 tonnes, in which one third belongs to battery grade carbonate lithium, in other words China’s demand is 18,000 tonnes, the rest of the world is 47,000 tonnes. In China’s consumption structure in 2011, the consumption of battery industry accounts for 31%, lubricating grease 15%, glass ceramics 9%, pharmaceutics and organic synthesis 7%, electrolytic aluminum 7%, chemical pharmaceutics 5%, others 26%. It is expected in 2012 the consumption percentage of battery industry will further increase, that of traditional industries will remain stable, while the percentage will drop slightly.

Small lithium battery is still the main driving force propelling demand growth. Benefiting from robust demand from smart mobile phone and tablet computer, lithium battery production experienced considerable growth. In November 2012, nationwide lithium battery production was 421.53 million pieces, up by 43.53% on Yo-Y basis; between January and November, total production of the nationwide lithium ion battery was 3.798 billion pieces, up by 42.71% on Y-o-Y basis.

The main driving force behind huge growth in lithium battery production mainly comes from changes in downstream product demand structure. Smart mobile phones and tablet computers showed robust demand, generally speaking, traditional mobile phone only needs 1000mAh lithium capacity, but smart mobile phone needs 2000mAh, one tablet computer needs 2-3 4000mAH lithium batteries, therefore smart mobile phone and tablet computer significantly increased the demand for lithium battery.

Since lead acid battery is heavy, inconvenient and easy to cause traffic accident, meanwhile blood lead pollution has become a focus of concern by the state government, the trend to replace lead acid battery with lithium battery has become common understanding of the industry. Compared with lead acid battery, lithium battery has higher volume, lighter weight, and longer service life, common lead acid battery has only one year service life, but lithium battery can be used for over three years. Because of the shutdown of a large number of lead acid battery factories, the price of lead acid battery has risen slightly, staying at USD 150-200 per kwh, whereas the price of lithium battery is about USD 600-700 per kwh, in terms of entire service life, the price of these two batteries are basically on the same level, in the future as the price of lithium battery further drops, the pace of lithium battery substituting lead acid battery will be further accelerated.

Judging from long term perspective, it is expected that by 2020 the growth of lithium demand in traditional fields is around 3.5%, the annual average compound growth rate in electronics consumption fields is around 10%, whereas the compound growth rate of emerging application fields including power storage and lithium alloy is 35% (2015-2020), and the annual average compound growth rate of transportation industry including electric bicycle and new energy auto is 35%. Overall speaking, in the future the lithium demand will maintain an annual average compound growth rate of 11%.

Judging from the short term perspective, the demand of consumption electronics products represented by small battery, notebook and mobile phone for lithium battery is robust, and are still the main driving force propelling demand growth. Against the background of formation of global oligarchy, concentration of raw material supply, and sluggish development of new resources, it is expected the price will maintain upward rising trend in 2013.