【Negative Electrode Materials】Cost and Profit Analysis

The industry's profit distribution is expected to be reallocated as the supply and demand dynamics of negative electrode materials reach equilibrium. From 2021 to Q3 2022, the graphite capacity constraints resulting from dual-control energy policies led to a shortage cycle for negative electrodes, resulting in continued profit growth throughout the industry chain. However, in terms of profit distribution, graphite dominates the majority of profits, with the profit share of negative electrode manufacturing decreasing from 78% in 2020 to 30% in 2021, and the average profit per ton decreasing by approximately 2,000 yuan. Starting from Q4 2022, with the release of graphite capacity by top-tier companies in the negative electrode sector, graphite prices gradually stabilized, and the supply and demand for negative electrodes began to balance, resulting in the redistribution of industry chain profits. Some cost reductions will be passed on to battery manufacturers, and the profitability of individual negative electrode manufacturers will depend on their self-supply rate of graphite and graphite costs. As an essential recarburizer for negative electrode materials, graphitized petroleum coke product information can be obtained. 

Product quality and cost jointly influence the profitability of negative electrodes, with higher self-supply rates of graphite being advantageous. Due to the differentiated nature of the negative electrode industry, the profit per ton of negative electrodes is determined by a combination of cost and technical premium. High-end negative electrodes command a technical premium and higher profitability, while low-end negative electrodes have less differentiation and primarily compete on cost. In terms of per-ton costs, there is not much difference among various companies, with the main variations being in per-ton prices and operating costs. For example, in H1 2022, the per-ton operating costs for Putailai, Shanshan, CITIC Guoan, Bettery, and Shangtai Technology were 3.35, 3.45, 4.46, 2.98, and 2.08 thousand yuan per ton, respectively, with Shangtai Technology significantly lower than other negative electrode companies, primarily due to its leading self-supply rate of graphite, benefiting from the graphite price increase cycle, ultimately resulting in a per-ton net profit of about 1.38 thousand yuan for Shangtai Technology in H1 2022.

As top-tier negative electrode manufacturers release their graphite capacity, they will start to compete on graphite costs. Taking into consideration capacity ramp-up, except for Bettery, it is expected that self-supply rates of graphite for various negative electrode manufacturers will reach 70%-80% by H2 2023, enabling a comparison of graphite costs. When breaking down graphite costs, Shangtai Technology's costs are expected to be the lowest, at around 6,500 yuan per ton. First-tier negative electrode manufacturers are expected to have costs around 8,500 yuan, while second-tier contract manufacturers are expected to have costs around 10,000 yuan, primarily due to electricity consumption and self-supply advantages. Under neutral forecasts with 80% industry average self-supply rates, Shangtai Technology's per-ton profit is expected to be around 8,000 yuan if the costs are brought down to the second-tier cost level. If all first-tier capacity replaces second-tier capacity, Shangtai Technology's per-ton profit is estimated to be around 5,000-6,000 yuan.

I. How to Compare the Profitability of Different Negative Electrode Manufacturers?

From an industry perspective, the graphite shortage from 2021 to Q3 2022 resulted in an overall increase in per-ton profitability for the negative electrode sector. However, since graphite is primarily supplied by third-party contract manufacturers, although overall profits increased, the per-ton profitability and its share in the negative electrode manufacturing process decreased.

From an individual perspective, the differentiation of negative electrode products with varying prices and costs needs to be considered.

On the price side: Negative electrode manufacturers have significant differences in average prices, depending on the combination of costs and technical premiums. Putailai and Shanshan primarily focus on mid-to-high-end negative electrodes, commanding higher average prices, while CITIC Guoan, Shangtai, and others primarily produce mid-range negative electrodes, emphasizing cost-effectiveness, resulting in relatively lower average prices.

On the cost side: We can analyze the cost structure of negative electrodes, which includes 1) consumables, 2) electricity consumption, and 3) depreciation and others. The cost of high-end negative electrodes is higher due to the use of more expensive raw materials, but we consider the cost differences in other process steps to be relatively minor.

II. Cost Advantages of Negative Electrodes and Steady-State Bottom-line Profit Estimation

Starting from 2023, with the overall increase in self-supply rates of graphite for negative electrode manufacturers, various companies will further compete on graphite costs. We break down graphite costs into:

1) Consumables

2) Electricity consumption

3) Depreciation and others

We calculate the unit profitability for Shangtai Technology as a reference.

1. Electricity Consumption: Shangtai's electricity consumption for the entire process is about 10,000 kWh. We exclude other process electricity consumption, which is about 3,000 kWh, and estimate graphite electricity consumption to be about 7,000 kWh. Top-tier new capacity is expected to reach 8,000 kWh, second-tier capacity may reach 10,000 kWh, and high-end crucible furnace capacity may be even higher, but it is not directly comparable to low-end negative electrodes.

2. Consumables: Part of the consumables are self-made, and the cost is estimated to be 1,000 yuan lower than other companies.

3. Other Costs: We assume these costs to be relatively similar. Contact us to learn more about the negative electrode materials industrial news.