10 October 2022

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Lithium 101 Equities - Metals & Mining

The irreplaceable “White Oil” China

 Lithium is a lightweight metal with the capacity to store large Howard Lau*, CFA
Analyst, China Basic Materials
amounts of energy The Hongkong and Shanghai Banking Corporation Limited
 This makes it an ideal material in the manufacturing of batteries, Santhosh Seshadri*, CFA
Analyst
making lithium the most crucial resource in energy transition HSBC Securities and Capital Markets (India) Private Limited
 The race to build precious new supply is accelerating but can Will Cho*
Analyst, Korea Technology and EV Battery
recycling help bridge the gap between supply and demand? The Hongkong and Shanghai Banking Corporation Limited,
Seoul Securities Branch
Lithium (Li), the lightweight metal with the capacity to store large amounts of energy, is Yuqian Ding* (Reg. No. S1700519090001)
now known as “White Oil.” With good reason. Prices have risen more than 8x since Head of China Autos Research
2021 due to a supply shortage and soaring growth in demand from surging EV sales. HSBC Qianhai Securities Limited
The reality is that lithium is simply irreplaceable when it comes to making EV batteries. Edoardo Spina*, CFA
Analyst, Automotive Research
This report is based on a larger note titled “China Lithium: The search for irreplaceable HSBC Bank plc
‘White Oil’” looking at the importance of new supply projects, the limited supply and huge
Sriharsha Pappu*
demand in China, the prospects for battery recycling, and why demand for lithium is so Head of Chemicals, Energy Transition Coordinator
much greater than for other battery materials. HSBC Bank plc

1: Lithium spot price 2: Spodumene spot price

90,000 6,000 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is
not registered/ qualified pursuant to FINRA regulations
80,000
5,000
70,000
60,000 4,000
50,000
3,000
40,000
30,000 2,000
20,000
1,000
10,000
0 0
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22
China Lithium Carbonate 99.5% DEL (USD/t) Spodumene 6% FOB Australia (USD/t)
Source: Bloomberg, HSBC Source: Bloomberg, HSBC

3: Lithium market balance 4: Lithium demand by industry (2022e)

60 15%
2% 1% 2%
1%
40 10%
3%
Batteries 3%
20 Glass and ceramics
5%
Greases/Lubricants 9%
0
Metal alloys
0%
(20) Air conditioning
-5% Polymers
(40)
Medicine 79%
(60) -10% Others
2020 2021 2022e 2023e 2024e
Market Balance (kt) as a % of demand (RHS)

Source: LME.com, HSBC estimates Source: Wood Mackenzie, HSBC estimates

This is a Free to View version of a report titled “China Lithium: The search for
irreplaceable ‘White Oil’” published on 10-Oct-22. Please contact your HSBC
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Disclosures & Disclaimer Issuer of report: The Hongkong and Shanghai

Banking Corporation Limited
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it. View HSBC Global Research at:
https://www.research.hsbc.com
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10 October 2022

Lithium 101

What is lithium?

As the third element and first metal on the periodic table, lithium is the lightest metal with good
electric conductivity. The unique properties of lithium make it an ideal material in the
manufacturing of batteries as it increases the batteries’ energy density efficiently (Wh/kg, the
energy stored per mass), making lithium the most crucial resource in energy transition.
According to the United States Geological Survey (USGS), lithium-ion batteries (LIB)
contributed to over 70% of global demand for lithium, followed by c14% from ceramics and
glass. LIBs are mainly used in power batteries, energy storage systems (ESS), and consumer
electronics. The growing demand for EVs are the main demand drivers of LIB and lithium.

Lithium industry value chain

Lithium is primarily found in hard rock (including spodumene, lepidolite, petalite, and
amblygonite) and can also be extracted from brine in water. Following the extraction of lithium
from minerals or brine, refineries further convert the lithium concentrate into lithium chemicals,
like lithium carbonate, lithium hydroxide, lithium chloride, and lithium metal. The refined lithium
chemicals are used as raw materials of the precursor of cathode, lithium hexafluorophosphate,
the raw material of electrolyte solution in rechargeable batteries, and other non-battery uses.

5: Simple lithium industry value chain

Rechargeable Battery
Lithium Hydroxide
Glass/Ceramics
Lithium Mineral Lithium Mineral
Concentrate Polymer
Grease

Lithium Brine Lithium Brine Concentrate Lithium Carbonate Metallurgical Powders

Air Treatment
Lithium Chloride Lithium Metal
Others

Lithium mining Lithium compounds and End user markets

Mineral-based product flow derivatives
Brine-based product flow
Lithium product conversion
Lithium products for end use

Source: Wood Mackenzie, HSBC

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10 October 2022

The Li-ion battery value chain

A lithium-ion battery cell is made of four key components: cathode, anode, electrolyte and
separator. Lithium compound is primarily used as the raw material of cathode precursor,
electrolyte and lithium metal anode. Cathode is the source of lithium-ion in a battery, and plays
an important role in determining the energy density and voltage of a battery. Lithium-ion is
stored and released as a form of lithium oxide in anode because lithium is unstable in its
element form. Graphite is the mainstream anode material. Electrolyte works as the medium that
allows lithium-ion to move freely between cathode and anode. The separator separates cathode
and anode. The battery cell is also packed with other components, like battery management
systems and cooling systems, to become a battery pack, which could be used for EVs, ESS and
consumer electronics production. The chart below illustrates the details of each stage.

6: Battery industry value chain

Upstream Midstream Downstream

Spodumene Lithium LFP

Carbonate
Brine NCM
Lithium
Hydroxide NCA

Ferric Lithium Lithium

Cathode
phosphate Precursor cobalt

Manganese Lithium
sulfate manganes Cell

Cobalt Lithium
sulfate nickel
BMS
Natural
Nickel
Graphite Cooling HEV
sulfate
Graphite system
Artificial
Graphite Graphene PHEV

Lithium
Lithium Lithium Anode
titanate Pack EV
Carbonate Hydroxide

Silicon
Anode Energy
Storage
Hard carbon/soft
Consumer
Lithium Electronics
LiPF6
Carbonate
Additives Electrolyte

Solvents

Ethylene/propylen

Polyimide
Separator
Coating
material

Source: HSBC

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7: Gross profit margin of companies along the battery industry value chain
80%
69%
70%
60%
50% 46%
39% 39% 37%
40%
30%
30% 24%
20%
10%
0%
2016 2017 2018 2019 2020 2021 1H22
Upstream - Lithium salt Midstream - battery materials Downstream - battery making
Source: Wind, HSBC

Lithium compound
Many technologies for rechargeable battery cells have been developed, such as nickel
manganese cobalt (NMC), lithium iron phosphate (LFP), nickel-cobalt-aluminium (NCA), and
lithium manganese oxide. NMC battery and LFP have become the mainstream technology route
of rechargeable battery due to their high energy density, longer life-time recycle and high safety.
Lithium carbonate and lithium hydroxide are the major refined lithium compound that will
participate in rechargeable battery production. Lithium carbonate is usually used as cathode
precursor for LFP batteries, while lithium hydroxide is primarily used to process cathode
precursor of nickel-rich NMC batteries.

Lithium resource distribution and production

Lithium makes up 0.002% of the earth’s crust, making it the 32nd most abundant element.
According to United States Geological Survey (USGS) data, global identified lithium resources
total about 89mt in 2022. More than 70% of identified lithium resource deposits are in five
countries – Bolivia (24%), Argentina (21%), Chile (11%), the US (10%), and Australia (8%).

Lithium cannot exist as pure element due to its high reactivity, so it is usually found as
compound in hard rock and brine. Lithium mineral, produced predominately in Australia,
accounts for c80% of global mineral lithium production in 2021. China and Canada contribute
17% and 2% of global mineral lithium production, respectively. Lithium brine is primarily
exploited in Chile and Argentina. Among current lithium projects, brine contributes the most to
lithium resources, accounting for 46% of global total projects, while mineral and clay projects
contribute 45% and 9%, respectively, according to Wood Mackenzie.

8: Identified lithium resource by country 9: Lithium mineral resource production by

(2021) country (2021)
1%
2%
8%
2%
3% 24%
3% Australia
4% 17%
6%
China
8%
21% Brazil
10%
11%
Others 80%
Bolivia Argentina Chile
United States Australia China
Congo Canada Germany
Mexico Others
Source: USGS, HSBC Source: Wood Mackenzie, HSBC

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Disclosure appendix
The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts
expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or
indirectly related to the specific recommendation(s) or views contained in this research report: Howard Lau, CFA, Santhosh
Seshadri, CFA, Will Cho, Yuqian Ding, Edoardo Spina, CFA and Sriharsha Pappu

This document has been issued by the Research Department of HSBC.

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
(including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or
liquidity provider in the securities/instruments mentioned in this report.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking,
sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company
available at www.hsbcnet.com/research.

Additional disclosures
1 This report is dated as at 10 October 2022.
2 All market data included in this report are dated as at close 05 October 2022, unless a different date and/or a specific time
of day is indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of
Research operate and have a management reporting line independent of HSBC's Investment Banking business.
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and/or (iii) measuring the performance of a financial instrument or of an investment fund.

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