The Zhitong Finance app learned that CITIC Securities released a research report saying that in the third quarter of 2023, the continued decline in lithium prices triggered South American salt lake lithium companies to lower their operating guidelines. Although the increase in lithium production capacity in South American salt lakes is limited in 2023 due to lower than expected production capacity expansion, the bank expects the supply of lithium in South American salt lakes to increase by about 80,000 tons in 2024, and the further increase in supply pressure will drive lithium prices to continue to fall. Coupled with the recent increase in the decline in lithium ore prices in Australia and the weakening of cost support logic, the bank expects lithium prices to fall below 100,000 yuan/ton in 2024, but it is important to pay attention to the potential impact of mergers and acquisitions integration trends in the lithium industry on prices.

The views of CITIC Securities are as follows:

In 23Q3, the price of lithium continued to fall, and the profits of lithium extraction companies in South America in Salt Lake continued to decline.

In 2023Q3, the lithium business revenue of major salt lake lithium extraction companies in South America declined month-on-month. Albemarle, SQM, Livent and Allkem's revenue was -4%, -13%, -10%, and -7% month-on-month, respectively, +20%, -45%, -9%, and -18%, respectively. The sales volume of SQM and Allkem lithium products was +4%/+22% year on year, and +0.5%/+33% month on month respectively; product prices fell 47%/40% year on year, respectively, and down 13%/33% month on month, respectively. The lithium battery industry chain inventory in the Chinese market was high in the third quarter, and the price of lithium salt continued to fall. Affected by this, the price and profit of lithium salt in South American salt lakes declined month-on-month.

Some salt lake manufacturers lowered their performance guidelines, and the price of lithium exports from Chile to China continued to fall in October.

Albemarle and Livent lowered their performance guidelines. Among them, Albemarle expects the price of lithium products to rise 15%-20% in 2023, down from the previous one, and lowered the 2023 lithium product sales guide from US$79.88 billion to US$7-72 billion; Livent still expects lithium prices to rise year on year in 2023, lowering the 2023 lithium business revenue guide from US$1,025 million to US$890,000-940 million. The price of lithium exports from Chile to China in October fell 14% month-on-month to 21,000 US dollars/ton, lower than the domestic lithium carbonate spot price during the same period.

The new production capacity of South American salt lakes in 2023 fell short of expectations, and production is expected to be released in 2024.

Due to the delay in the 20,000 ton production capacity of Livent's lithium carbonate production expansion project until 2024, the bank lowered the production capacity forecast for the Salt Lake lithium extraction project newly put into operation in South America to 120,000 tons/year in 2023. Due to the slow commissioning of some lithium salt lake projects, the bank expects South American salt lake lithium production to increase by 32,000 tons in 2023, down 20,000 tons from previous expectations. The bank expects new production projects to centrally release production capacity in 2024, and expects to increase production capacity by 80,000 tons in 2024. However, judging from the past increase in production capacity in South American salt lakes, the actual output of most projects may still fall short of expectations.

Lithium prices are expected to continue to decline in 2024, and the trend of mergers and integration in the industry is worth paying attention to.

Considering that the lithium production capacity of South American salt lakes will usher in further growth in 2024, the increase in supply-side pressure will continue to drive lithium prices down. Combined with the recent increase in the decline in Australian mineral prices and the weakening of cost support logic, the bank expects lithium prices to fall below 100,000 yuan/ton in 2024, and seek cost support at a lower level. It is worth noting that as the lithium industry enters a downward cycle, the trend of mergers and acquisitions integration within the industry is reappearing. Attention should be paid to potential changes on the supply side after lithium manufacturers seek alliances.

Investment Strategy:

In the third quarter of 2023, the continued decline in lithium prices triggered South American salt lake lithium companies to lower their operating guidelines. Although the increase in lithium production capacity in South American salt lakes is limited in 2023 due to lower than expected production capacity expansion, the bank expects the supply of lithium in South American salt lakes to increase by about 80,000 tons in 2024, and the further increase in supply pressure will drive lithium prices to continue to fall. Coupled with the recent increase in the decline in lithium ore prices in Australia and the weakening of cost support logic, the bank expects lithium prices to fall below 100,000 yuan/ton in 2024, but it is important to pay attention to the potential impact of mergers and acquisitions integration trends in the lithium industry on prices.

Risk factors: Downstream demand growth falls short of expectations; risk of a sharp drop in lithium prices; risk that companies' production capacity expansion progress falls short of expectations; risk that related companies' overseas operations will be blocked.