Lithium battery material industry is still in the capacity release period in the next 1-2 years

Lithium battery materials mainly include cathode materials, anode materials, diaphragms, electrolytes, etc. required for lithium battery production. After nearly two years of growth from the fourth quarter of 2020 to the second quarter of 2022, the profitability of individual segments has expanded significantly. With the gradual release of new capacity, industry profitability has declined since the second quarter of 2022, leading to the poor month on month growth of material enterprises in the third quarter, in which electrolytes, lithium iron phosphate and ternary cathodes with high initial growth declined significantly.

We believe that the material industry has a global competitive advantage. Considering the increase of market share and penetration rate brought by new technology, the profit growth of some material enterprises will be higher than that of the industry. Therefore, the current situation should not be too pessimistic. Diaphragm, cathode, anode precursor and other links with good competition pattern and small profit downward space regain investment value.

Now familiar ternary and lithium iron phosphate are cathode materials of lithium battery, and anode materials are mainly natural graphite and artificial graphite. China's production capacity accounts for about 60% to 70% of the global share, with global competitive advantage. The electrolyte consists of three parts: electrolyte lithium salt, solvent and additive. Lithium hexafluorophosphate, which was popular in the market before, belongs to the traditional mainstream electrolyte lithium salt. Diaphragm is a heavy asset industry with high production barriers. Although China started relatively late, but now has realized domestic replacement, the shipment volume is also ranked first in the world.

Looking back, in the next 1-2 years, the lithium battery material industry will still be in the production capacity release period. Supply and demand margins are expected to loosen and profit levels are expected to fall further. However, the stock price has reflected the expectation of earnings decline after the sector correction, and the electric vehicle industry will still maintain a growth rate of more than 30% in the next two years. At present, the lithium battery material in 2023 will be 15-20 times of PE. The valuation is at a historical low and some links are cost-effective. Contact us to learn more about graphite anode materials market trends.