Nonferrous Metals: resumption of work and production stimulates electrolytic aluminum to open destocking. Has the nationalization reform of lithium mines in Chile been rejected

Event: the resumption of electrolytic aluminum production was accelerated, and the completed production capacity at the end of March 2022 increased by 2.276 million tons compared with the end of 2021.

Comments: in the first quarter, China's electrolytic aluminum production capacity increased rapidly, and the operating capacity climbed month by month. According to SMM data, at the end of the first quarter of 2022, China's electrolytic aluminum production capacity reached 44.07 million tons, and the operating capacity reached around 39.97 million tons, a total increase of 2.276 million tons over the end of last year, a year-on-year increase of 530000 tons, and the industrial operating rate was 90.8%.

Downstream demand recovered slowly or Hedged supply increased. China's electrolytic aluminum inventory decreased by 5000 tons compared with last Thursday, and the overall trend of inventory decline continued. According to SMM statistics, on April 25, China's social inventory of electrolytic aluminum was 1.016 million tons, a decrease of 5000 tons compared with last Thursday and 23000 tons compared with last Monday. The overall inventory reduction trend remains unchanged.

Low inventory superimposed demand margin improved, optimistic that electrolytic aluminum profits will remain high, and aluminum processing export profits may benefit from the depreciation of RMB. Since mid March, China's electrolytic aluminum inventory has continued to fluctuate and decline. The continuous promotion of the national steady growth policy ensures the smooth operation of downstream industrial enterprises, China's demand margin improves, or hedges the increase of electrolytic aluminum operation capacity. It is expected that the profit of electrolytic aluminum will remain high during the year. In terms of import and export, at present, the price ratio of Shanghai and Lun aluminum has fallen to a low level, forming a price difference outside China. In addition, the RMB has depreciated significantly against the US dollar, the euro and the British pound recently. It is expected that it will still bear great depreciation pressure in the second quarter, which will have a positive impact on exports, and the export profit of aluminum processed products may maintain a record high.

Event: whether all the proposals of the environmental committee of the constitutional assembly of Chile have been rejected and revised, and the draft constitution needs to be voted on before mid May.

Comments: Chile's constitutional assembly rejected a series of proposals aimed at expanding environmental protection, especially focusing on the main mining industry and promoting the nationalization of copper, lithium and other strategic assets (98 votes in favor and 46 votes against). These proposals will be returned to the Committee for revision. Each of the draft new constitution needs to obtain at least 103 votes in 154 possible votes to pass. This is the second time that the committee's report has been rejected, and only 6 of the 40 proposals were approved in the first vote. In addition, the constituent assembly must approve the provisions of the draft constitution by mid May, complete the draft in July, and then voters will vote to approve or veto the new constitution on September 4. If voters reject it, the government will uphold its current market-oriented constitution.

Historical nationalization & privatization process of sqm:

In 1968, Anglo lautaro and CORFO established a joint venture sqm;

In 1971, corfp acquired all shares of Anglo lautaro, marking the complete nationalization of sqm by the Chilean government;

In 1983, cprfp started the privatization of sqm;

In 1988, sqm shares were fully held by the public;

In 1990, sqm chairman Ponce became the actual controller of sqm through Pampa calicher and Chile global mining investment company;

In 1993, sqm obtained the mining right of Atacama salt lake from CORFO through competitive bidding, and the development period is 19932030 (the total amount of lithium extracted during this period shall not exceed 180100 tons (equivalent to 958700 tons of LCE));

In 2014, when left-wing President Michelle Bachelet came to power, CORFO launched a legal arbitration against sqm and its wholly-owned Atacama project company sqm, accusing sqmsalar of using the wrong calculation method to pay CORFO at least $89 million in resource fees from 2009 to 2013, and failing to fulfill its obligation to protect the corresponding CORFO mineral rights because it did not build or replace marks to delimit the property line.

In August 2016, CORFO launched the second arbitration procedure against sqm, demanding to terminate the Atacama lease in advance again and compensate CORFO for its economic losses.

At the end of 2017, the government reached a preliminary agreement with the right-wing party, and said that the dispute had been settled again.

In January 2018, sqm announced that it had reached an agreement with CORFO.

In March 2022, the left-wing leader boric is about to start his presidential term, and he supports the nationalization of lithium mines.

In April 2022, the Chilean constitutional assembly rejected a series of proposals to expand environmental protection, especially those focusing on the mining industry to promote the nationalization of copper, lithium and other strategic assets, with 98 votes in favour, 46 votes against and 8 abstentions.

The obstruction of this proposal shows that there is policy uncertainty in the operation of overseas lithium mines, and the specific overseas ownership process is still in the game. According to SMM, Chile's lithium production capacity accounted for 24% of the global total production capacity in 2021, making it the second largest lithium supplier in the world. The participation of Chile's state-owned capital may have a certain disturbance on the supply side. Specifically, sqm's existing salt lake lithium carbonate capacity is 120000 tons / year, accounting for about 16% of the global capacity and 34% of the global Salt Lake capacity. At the same time, sqm's capacity will be expanded to 180000 tons / year in mid-2022 and will be further expanded to 210000 tons / year in the future, accounting for about 20% of the new capacity and 46% of the new salt lake capacity in that year. In addition, ALB announced that the capacity of Atacama Salt Lake will reach 80000 tons / year in 2022, and there is still room for further improvement in the future.

Impact on Tianqi Lithium Corporation(002466) : Tianqi Lithium Corporation(002466) holds sqm21 9% equity (after the delivery of class B shares), three board members have been nominated and appointed by sqm, which has hindered the progress of nationalization or benefited the capital investment of sqm's main shareholders, accelerated the process of capacity expansion and contributed considerable investment income.

China's lithium resources have a prominent strategic position and high development certainty. Enterprises deeply involved in China's resource development or integrated layout may have long-term competitive advantages.

(1) in terms of resources, according to USGS, China's lithium resources account for about 6% of the world's lithium resources. From the perspective of lithium resource distribution, according to GGII, more than 80% of China's lithium resources are stored in salt lakes and distributed in Qinghai, Tibet and other provinces; Lithium ore resources are concentrated in Sichuan, Jiangxi, Hunan, Xinjiang and other provinces; Clay resources are concentrated in Yunnan, Guizhou and other provinces.

(2) at the policy level, the Ministry of industry and information technology has repeatedly proposed to ensure supply and price stability, and lithium resources are highly dependent on foreign countries at this stage.

(3) on the corporate layout level, the layout of the corporate layout level, the layout of Contemporary Amperex Technology Co.Limited(300750) and others also participate in the integrated layout.

Risk tip: the demand for new energy is less than expected, and the macro-economy fluctuates greatly

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