Text Guanwang Finance/Wang Muchu Chile is the world’s largest copper ore supplier and the world’s second largest lithium ore supplier. Chile, which has “mines at home,” has a presidential election that stirs up nerves in the global copper and lithium mining industries, and the new energy and automobile industries are equally nervous.
On December 19, Gabriel Boric was elected President of Chile. He advocated strengthening state regulation, increasing royalties for mining companies, opposing the privatization of mineral resources, and promoting the establishment of State-owned Lithium Corporation, etc. On Monday (20th), the lithium battery sector of the US stock market fell.
According to foreign media, Boric’s governance measures in mining will inevitably have an impact on Chinese companies.
Screenshot of foreign media reports
With the election of Chile’s left-wing president, will global lithium prices experience new changes?
Lithium is an indispensable material for the electric vehicle industry.
A report from Chilean mining agency Cochilco shows that the electric vehicle industry will dominate the demand for lithium in the next decade, and lithium will account for 79% of ultra-light battery metal consumption by 2030, up from one-third in 2019 one. Cochilco said that due to the impact of the new crown pneumonia epidemic, the demand for lithium from electric vehicles will weaken in 2020 and is expected to be around 75,000 tons, but will soar to 1.4 million tons by 2030. Meanwhile, demand for mobile phones and other consumer goods will reach 377,000 tons by 2030, compared with an expected 242,000 tons in 2020.
The report predicts that Australia and Chile will maintain their leading position in production with smaller profit margins.
According to data from the Ministry of Commerce, the current lithium resources in the global market mainly come from 6 countries: Australia, Bolivia, Chile, Argentina, China and the United States. Chile's reserves are more than 7.5 million tons, accounting for 52% of the world's total (14 million tons), mainly from the Salar de Atacama (Salar de Atacama), the second largest region, which accounts for 81% of the country's reserves.
Lithium mining rights belong to the Chilean government. Lithium is a strategic resource in Chile, and mining is subject to quota controls. Chile is one of the world's largest producers of lithium carbonate, and lithium ranks behind copper, molybdenum and iron in Chile's mineral export rankings. Mainly exported to South Korea, China and Japan, accounting for 73% of the total.
Chile is a major mining country in the Americas. Ministry of Commerce website map
On December 19, local time, Boric, the candidate of the Chilean left-wing alliance "Apruebo Dignidad" (Apruebo Dignidad), unexpectedly By an advantage, he defeated the candidate of the right-wing political party alliance "Christian Social Front" Jose Antonio Kast (Jose Antonio Kast) and was elected as the new president of Chile. According to media reports such as Reuters, AFP and The Guardian, during the campaign, Boric clearly advocated strengthening state regulation, increasing royalties for mining companies, opposing the privatization of mineral resources, and promoting the establishment of a state-owned lithium company. According to public opinion, global lithium prices may undergo new changes.
Strong demand in the lithium consumer market screenshot of the announcement
Bolic was elected and the market was turbulent: Will China's new energy and automobile development plans also be disrupted?
Chilean stock markets and foreign exchange prices fell on Monday due to concerns about possible radical economic policies. Chile's benchmark stock index closed down 6.2%, after falling 7.5% earlier. The yield on Chile’s dollar-denominated bonds due in 2050 rose 8 basis points to 3.3%. MSCI's Chilean stock index fell 10.45%, its biggest one-day drop since mid-May.
Share prices of mining companies operating in Chile fell in response. Lundin Mining Corp. fell nearly 17% on the Toronto Stock Exchange on Monday, and British mining company Antofagasta (Antofagasta) Stocks fell more than 5% in London. The world's second largest lithium producer, Sociedad Quimica y Minera de Chile SA (SQM), led the decline in Chile's main stock index IPSA, falling by 14%, the largest decline since the epidemic.
wind screenshot
Market sentiment has also been transmitted to domestic lithium prices. Data from Shanghai Nonferrous Metal Network shows that on the 20th, metallic lithium rose sharply by 20,000 yuan/ton to 1.175 million yuan/ton, a monthly increase of more than 7%; battery-grade lithium carbonate rose by 3,500 yuan/ton to 241,500 yuan/ton, a monthly increase Exceeding 18%, constantly refreshing new highs within the statistical caliber (2017 to present).
Currently, Chile’s lithium industry is dominated by SQM and Albemarle.
Among them, SQM has a deep relationship with Chinese enterprises.
Screenshot of SQM website
Chilean Mining and Chemical Industry was established in 1968 and engages in the production and sales of fertilizers, chemical products, iodine and lithium. Total assets are US$1.36 billion.
In 2017, it achieved a profit of US$428 million, a year-on-year increase of 54%. SQM was fully nationalized in 1971, but was privatized after Pinochet's coup.
In 2018, Tianqi Lithium from China spent US$4.066 billion to acquire 23.77% of SQM’s equity. After the transaction was completed, it held a total of 25.86% of Class A and B shares, becoming its second largest shareholder. This sky-high acquisition has caused Tianqi Lithium's debt ratio to soar from 40.39% in 2017 to 80.88% in 2019. However, the rise of the global new energy and automobile industry chain has also given Tianqi Lithium an advantage.
Screenshot of the announcement
Boric’s coming to power has made the outside world full of speculation about Tianqi Lithium and the entire lithium market.
The "Financial Times" believes that Borich's opposition to "destructive" environmental mining plans led to the decline in the share price of SQM, a company owned by Tianqi Lithium. Bank of America analyst Isabella Simonato issued a research report, lowering the rating of Chilean Mining and Chemicals (SQM.US) from "neutral" to "underperform" and lowering the target price from US$67 to US$50. Simonato believes that although Boric has not formally proposed to increase taxes and royalties for the time being, these policies pose potential downside risks to Chilean mining and chemical industries.
Announcement screenshot
In addition to the lithium resource industry, the entire new energy automobile industry chain is also facing the risk of continued rising costs. Due to the rapid growth of global new energy vehicle sales, the prices of lithium, nickel, copper and other metal resources required for lithium batteries have risen sharply since this year, which has had a serious impact on the profit margins of lithium battery manufacturers such as CATL. If costs continue to rise in the future, it may lead to an increase in the prices of lithium batteries and new energy vehicles. Combined with the withdrawal of new energy subsidies, this may put greater pressure on consumer demand.
Guotai Junan Securities stated that this election will not affect the lithium supply of planned production capacity in the short to medium term; in the long term, there is a possibility of delaying unexploited resource projects, which will have some impact on the long-term release of global lithium resource supply. limit.
Analysts at Longzhong Information believe that the most pessimistic scenario during Boric’s administration is that the government withdraws the exploration license of Chilean Mining and Chemical Industry (SQM) in advance, but this is a very extreme situation. In the short and medium term, the local planned lithium supply will not be affected, and the production capacity invested in the early stage will gradually reach capacity. In the long term, new projects may be delayed in the future, which will limit the release of long-term global lithium resource supply.
"While Borich has tried to emphasize that his economic model will not be radical, it is clear that market-friendly policies may be a thing of the past." Brown Brothers Harriman, global head of FX strategy Win Thin said, "The market hates uncertainty, and Chile provides uncertainty for many years to come."
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