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Jordan, Investor Network

The price of lithium carbonate affects industries and companies with market capitalizations of tens of billions.

On August 7, according to SMM data, the price index of battery-grade lithium carbonate fell to 80,329 yuan/ton, and its price range remained between 78,600 and 82,200 yuan/ton, with an average price of about 80,400 yuan/ton. At the same time, the price of industrial-grade lithium carbonate also fell, with a price range of 74,900 to 76,000 yuan/ton and an average price of 75,450 yuan/ton.

This series of price changes has undoubtedly brought heavy pressure to the entire industry. As the leader of the lithium industry, Ganfeng Lithium (002460.SZ) is also difficult to remain immune in this market storm. The company's performance is significantly affected by the cyclical fluctuations of the industry, and it is expected that it will continue to face the challenge of losses in the first half of this year. In addition, the company's overseas mineral projects have also encountered policy uncertainties and are at risk of being cancelled, which has undoubtedly further aggravated the company's operating difficulties.

Ups and downs in industry cycles

Ganfeng Lithium is one of the few companies in the world that has mastered the industrial technology of extracting lithium from brine, ore and recycled materials. The company is able to produce more than 40 lithium compounds and lithium metal products in five categories, and is one of the manufacturers with the most complete supply of lithium products. When talking about Ganfeng Lithium, we can't avoid the soul figure Li Liangbin.

Li Liangbin was born in 1967 in an ordinary peasant family in Fengcheng, Jiangxi Province. After graduating in 1988, he was assigned to the Jiangxi Lithium Factory Research Institute as a technician and was promoted to director before he was 30. Although he enjoyed a stable position in a state-owned enterprise, industry changes prompted him to seek new opportunities.

In the late 1990s, as foreign companies such as SQM (Chilean Mining and Chemicals) entered the Chinese market using low-cost brine lithium extraction technology, Li Liangbin realized the cost disadvantage of domestic ore lithium extraction. In 1997, the 30-year-old Li Liangbin left the Jiangxi Lithium Factory, and the following year he and several partners founded their own lithium factory in Hexia Town, Xinyu City.

In the early days of the business, the conditions were difficult and the team was less than 20 people. Li Liangbin took on multiple positions. During this process, Li Liangbin learned how to negotiate, find customers and manage the team, laying the foundation for the company's long-term development. In 2000, Li Liangbin officially established Ganfeng Lithium.

Under Li Liangbin's leadership, Ganfeng Lithium has grown rapidly. From 2007 to 2008, the company's sales of lithium metal, butyl lithium and lithium fluoride ranked first in China. In 2010, Ganfeng Lithium was listed on the Shenzhen Stock Exchange and in 2018 on the Hong Kong Stock Exchange. Today, Ganfeng Lithium has become one of the world's largest lithium metal producers.

With the rapid development of the electric vehicle industry, the lithium industry has received widespread attention, and Ganfeng Lithium's stock price has risen accordingly, with a market value of more than 300 billion yuan. Li Liangbin's wealth on the Hurun Rich List in 2021 reached 54.5 billion yuan. Later, as the stock price fell, his wealth decreased to 32.5 billion yuan in 2022. Despite this, he was still the richest man in Jiangxi at the time.

In recent years, the rapid growth of the new energy vehicle industry has driven the development of the lithium battery industry chain, but this industry has also experienced cyclical fluctuations. Downstream demand is strong, midstream batteries are in short supply, and the upstream has seen the phenomenon of "holding lithium as king". However, with the expansion of production capacity of lithium mines and battery companies, the market has shifted to oversupply, causing lithium carbonate prices to fall from historical highs, from a historical high of 600,000 yuan per ton in 2022 to below 80,000 yuan per ton in August 2024.

With the changes in the lithium industry cycle, the market value of Ganfeng Lithium has also declined. As of now, the market value of Ganfeng Lithium has dropped to more than 50 billion yuan. Li Liangbin's personal wealth has further shrunk, and the position of the richest man in Jiangxi has been replaced by Li Xiande, chairman of JinkoSolar. At the same time, Ganfeng Lithium is also facing considerable challenges in operation and performance.

Performance difficulties under the plummeting lithium prices

Ganfeng Lithium's performance was severely affected by the sharp drop in lithium prices. In 2023, the company's revenue and net profit fell by 21% and 76% to 33 billion yuan and 4.9 billion yuan, respectively.

Compared with its peers, Ganfeng Lithium has a lower self-sufficiency rate than Tianqi Lithium, so it is more significantly affected when the lithium salt market is sluggish. For example, the gross profit margins of lithium salt products of Tianqi Lithium and Ganfeng Lithium are 74% and 13% respectively in 2023. In terms of asset impairment, the company has made an asset impairment provision of 1.6 billion yuan in 2023, while Tianqi Lithium has made an asset impairment provision of 730 million yuan.

In 2024, lithium prices continued to fall, falling below the 80,000 yuan/ton mark in August. This has had an impact on the lithium battery industry chain. Ganfeng Lithium suffered a net loss of 439 million yuan in the first quarter of 2024, a year-on-year decline of 118%. The company expects losses in the first half of 2024 to be between 760 million yuan and 1.25 billion yuan, mainly due to fair value changes caused by the decline in the share price of Pilbara Minerals Limited (PLS), and the decline in the prices of lithium salts and lithium battery products caused by the downward cycle of the lithium industry.

At the same time, Ganfeng Lithium's industrial chain process is also quite unsuccessful. In recent years, the company has actively expanded upstream and downstream businesses, including lithium resource development and battery manufacturing and recycling. The company has high-quality lithium mineral resources in many regions around the world, among which the Mount Marion project in Australia is its main lithium resource. However, in the process of industrial chain integration, Ganfeng Lithium encountered challenges in the Sonora lithium clay project in Mexico.

In 2022, Ganfeng Lithium spent 190 million pounds (equivalent to about 1.7 billion yuan) to acquire Bacanora, which owns one of the world's largest lithium resource projects, the Sonora project, with a total lithium resource of about 8.82 million tons of lithium carbonate equivalent. However, the Mexican government subsequently revised the mining law, classifying lithium mines as strategic resources and prohibiting private companies from obtaining new concessions. This policy change caused Ganfeng Lithium to lose nine mineral concessions in the Sonora project in August 2023. Despite multiple negotiations by Ganfeng Lithium, the dispute has not been resolved to date.

It is worth noting that the Sonora project was still listed on Ganfeng Lithium's overseas asset list in 2022, but in the 2023 annual report, the project had disappeared from the overseas asset list. It is not clear whether the company has made asset impairment treatment for the project, but this situation undoubtedly brings uncertainty to future development. (Produced by Siwei Finance) ■

Ganfeng Lithium