Affected by the downcycle of lithium prices, Ganfeng Lithium (002460.SZ) has started to shift from profit to loss in its performance.

The semi-annual report shows that in the first half of 2024, the company achieved a revenue of 9.589 billion yuan, a year-on-year decrease of 47.16%, and a net profit loss of 760 million yuan, with a year-on-year decline of 113%. This is the first semi-annual report since Ganfeng Lithium's listing in 2010 that has shown a loss.

As of the close on August 29, the share price of Ganfeng Lithium had fallen to 26.39 yuan per share, with a cumulative decline of about 36% for the year, while the stock had once risen to 157.4 yuan per share in September 2021.

This is also the predicament faced by the entire industry. The price of lithium carbonate has plummeted from 500,000 yuan/ton at the beginning of 2023, once falling to about 70,000 yuan/ton, and the inventory impairment of related listed companies has gradually emerged. Despite this, the company's pace of purchasing mines has not stopped.

Profits from lithium salt products are under pressure

Ganfeng Lithium stated in the semi-annual report that, affected by the downcycle of the lithium industry, the selling prices of Ganfeng Lithium's lithium salt and battery products have fallen, leading to a significant decline in key financial indicators such as revenue and net profit.

Advertisement

Data shows that in the first half of the year, Ganfeng Lithium's revenue from lithium series products fell by 52.40% year-on-year, and the revenue from battery series products fell by 33.73%. At the same time, the gross profit margins of these two major products also declined. The gross profit margin of lithium compounds and metallic lithium products was 11.75%, a decrease of 12.37 percentage points from the same period last year; the gross profit margin for batteries and cells was 9.88%, a year-on-year decrease of 9.06 percentage points.

In addition, in terms of inventory impairment, Ganfeng Lithium's asset impairment was about 82.627 million yuan during the reporting period, accounting for 8.22% of the total profit. The company stated that the main reason was the impact of the cyclical nature of the lithium industry, which led to the provision for inventory impairment losses.

Ganfeng Lithium acknowledged that since 2021, the prices of lithium products have risen to historical highs and have shown a trend of falling back. In the future, the sales volume of lithium products is expected to continue to benefit from the growth in market demand in industries such as new energy vehicles, energy storage vehicles, and consumer electronics. However, the non-ferrous metal industry is a cyclical industry, affected by changes in various factors, and the prices of lithium products show volatility. Current and expected supply and demand changes may affect the current and expected prices of lithium products.

Overseas mineral investment lossesIn fact, Ganfeng Lithium's net profit began to turn from profit to loss starting from the first quarter of this year. In the first quarter of this year, the company's net profit loss was 439 million yuan, and the loss for the entire first half of the year has expanded to 760 million yuan, with the second quarter loss still exceeding 320 million yuan. Ganfeng Lithium also mentioned in its semi-annual report that the decline in the stock price of Pilbara Minerals Limited (hereinafter referred to as Pilbara), a financial asset held by the company, led to a significant loss in fair value changes. According to the disclosure, mainly due to the decline in the stock price of Pilbara held, the company's fair value change profit and loss for the first half of the year was approximately -874 million yuan, accounting for 86.91% of the total profit.

However, despite the decline in Ganfeng Lithium's profitability, its capacity expansion plan has not stopped, but continues to buy mines against the trend. According to the semi-annual report, in the first half of the year, the company continued to increase its stake in Mali Lithium, and currently holds 60% of Mali Lithium's equity and has obtained control over it. The construction of the flotation production line for the first phase of Mali Lithium's Goulamina spodumene project is in the final stages and is expected to produce the first batch of spodumene products within this year.

In addition, the company disclosed on May 7th that its wholly-owned subsidiary, Ganfeng International Co., Ltd. (hereinafter referred to as "Ganfeng International"), plans to use its own funds of $342.7 million (approximately 2.5 billion yuan) to acquire the remaining 40% equity of Mali Lithium from Leo Lithium, in order to obtain the management rights of the Goulamina spodumene mine project. If the acquisition is completed, Ganfeng International will wholly own Mali Lithium.

Regarding the risks of lithium resource development, Ganfeng Lithium stated that if it encounters policy adjustments in government export and tax rates, geopolitical relations, natural disasters, and transportation interruptions, it may need to adjust production plans and reduce the amount of resources and reserves available for production and expansion plans, which will adversely affect the company's business, financial condition, and operating performance.

The industry is going through a bottoming-out phase. In the spot market, lithium salt production increased in the first half of the year, and prices continued to fall, breaking through the cost line of most enterprises. According to statistics from the Lithium Industry Branch of the China Nonferrous Metals Industry Association, from January to June 2024, domestic lithium carbonate production was about 298,000 tons, a year-on-year increase of 48.8%; during the same period, lithium hydroxide production was about 175,000 tons, a year-on-year increase of 21.4%.The latest quotes from Shanghai Metals Market show that on August 29th, the price of lithium carbonate (99.5% battery-grade/made in China) remained unchanged at 74,400 yuan/ton, with a cumulative drop of 580 yuan in the past 5 days, and a cumulative drop of 12,020 yuan in the past 30 days. The price of lithium hydroxide (56.5% battery-grade coarse particles/made in China) fell by 280 yuan to 72,000 yuan/ton, hitting a new low in over 3 years, with a cumulative drop of 9,200 yuan in the past 30 days.

Yingda Futures analysis believes that the current lithium carbonate market is experiencing a supply-demand imbalance, with upstream lithium salt manufacturers showing a strong wait-and-see attitude, and downstream buyers showing weak purchasing intentions, leading to a pervasive pessimistic sentiment in the market. Jianxin Futures analysis suggests that although lithium salt manufacturers are facing losses, there is no clear trend of production reduction, and the situation of oversupply has not been significantly alleviated. It is expected that the price of lithium carbonate will continue to fluctuate in the short term, with market negotiations still ongoing.

Industry insiders analyzed to Yicai that the industry has now entered a bottoming-out phase, and lithium prices may further decline. However, with the concentrated release of integrated production capacity, the industry's average production cost is expected to decrease. Capacities that lack their own mineral supply and have higher costs will face greater risks of being cleared out, and the industry structure is set to be reshaped.