Lithium: Tianqi steps into lithium-ion battery cathode material business

Lithium-ion battery

Tianqi Lithium has announced its intension to purchase a RMB49.9Mn (US$7.44Mn) stake in Xiamen Tungsten New Energy Materials, a major Chinese manufacturer of lithium battery materials. When the transaction closes, Tianqi will hold a 3% share.

Xiamen Tungsten New Energy Materials, established in 2016, is a subsidiary of Xiamen Tungsten. It focuses on lithium battery cathode materials including LCO, LFP, NCM and LMO and has two production bases in Haicang and Sanming, Fujian province, with a capacity of 30ktpy for cathode materials. It is also constructing two new bases in Ningde and Haijing. Total capacity is expected to reach 50ktpy in 2019.

Prior to this investment, Tianqi had already formed a long-term cooperation with Xiamen Tungsten New Energy Material as its lithium supplier. Through the purchase, Tianqi expects to expand sources of profit growth and reduce the risks of its business being highly-concentrated on lithium. It also helps strengthen the connection between Tianqi and its downstream customers.

Roskill view:

Xiamen Tungsten is Tianqi’s first step into lithium battery cathode materials. Tianqi’s year-on-year profit growth in 2018 was merely 3%, which was attributed to a ‘high brokerage fee coming from the deal with SQM Chile and other losses from exchange rate’. Roskill believes, however, that a declining lithium price also eroded Tianqi’s margin. Xiamen Tungsten on the other hand, saw a slide in profits for its battery materials business. The cobalt price drop in Q4 2018 triggered a sharp decline in the selling price of cathode materials and year-on-year profit growth was reported to decrease by 65.42%.

Under the current lithium price environment, it is unlikely the Chinese lithium producers will maintain a triple or double-digit growth rate as they experienced in the recent past. Diminishing subsidies on new energy vehicles (NEVs) means margins will be squeezed up the supply chain. This is likely to drive consolidation and, whilst Tianqi’s 3% stake is not material, it could signal the start of lithium producers seeking diversification, especially as downstream lithium users look to establish their own production facilities to capture margin, which is currently highest at the raw material production step.

To discuss the lithium market with Roskill, contact Robert Baylis: robert@roskill.com or Xiaobai Liu Xiaobai@roskill.com