December 15, 2025 09:07 PM GMT China Materials | Asia Pacific 2026 Outlook – Equity Implications: New Materials In New Materials, we see more upside for lithium prices from strong Energy Storage demand, and continued uranium recovery; solar glass prices likely face seasonal pressure. Lithium – better-than-expected demand leading to improved outlook for prices: Lithium demand has been better than expected YTD with very strong demand from Energy Storage Systems (ESS). ESS production is up 70% YoY YTD, and the ...

Market Overview - The lithium market is experiencing a recovery, currently trading around $13,500 per metric ton, which is a nearly 50% increase from intra-year lows and over 25% year-over-year, although still significantly below the $80,000 peak in 2022 [1] Demand Drivers - Electric vehicles (EVs) continue to be the primary source of lithium demand, but energy storage systems are emerging as the next major growth driver, with large-scale battery installations rapidly expanding [2] - Analysts predict that energy storage will outpace EV growth in 2026, particularly as EV markets in China mature and U.S. growth faces policy uncertainties [3] Energy Storage Systems - Energy storage systems vary from large utility-scale batteries to smaller grids that support homes and buildings, capable of operating independently during outages [4] - Integrated energy storage allows for the saving of excess supply to be utilized during peak demand times [5] Industry Outlook - Chinese lithium producers are optimistic about the emerging demand, with expectations for the global lithium market to reach balance by 2026 and 2027 due to rapid growth in energy storage installations [6] - Bernstein analysts note a bottoming market for lithium, anticipating tightening conditions through 2026 and 2027 [6] Technological Advancements - Direct lithium extraction (DLE) is moving towards commercial production, with Albemarle Corporation achieving recovery rates above 94% and water reuse of up to 85% in its Chilean DLE pilot plant [7] - Albemarle's stock has shown volatility, reflecting market uncertainty and optimism regarding technological advancements in lithium extraction [8] Investment Performance - The Global X Lithium & Battery Tech ETF is up 53.76% year-to-date, indicating strong investor interest in the sector as energy storage demand accelerates [8]

3 December 2025 Source: UBS HOLT. Data as of 12/01/2025. Universe: China A-share companies in the HOLT database, market cap > US$1 bn, analyst coverage ≥3, calculated on a weighted basis. Sorted by CFROI revisions. Figure 2: CFROI revisions and price performance (4wks) CFROI Revisions 4 Wk Price Change 4 Wk CFROI Revisions 4 Wk Price Change 4 Wk 0.4 0.2 0.0 -0.2 -0.4 -0.6 8 4 0 -4 -8 Source: UBS HOLT. Data as of 12/01/2025. HOLT APAC China A-Share - Sentiment Mismatch Opportunities in the Materials sector I ...

Summary of Key Points from the Conference Call Industry Overview - The focus is on the energy and power sector, particularly in relation to China's carbon emissions and the transition to renewable energy sources [2][7][36]. Core Insights and Arguments 1. **Peak Emissions in China**: China is likely to record a decline in carbon emissions this year, potentially peaking five years ahead of its 2030 target [5][7]. 2. **Energy Demand Growth**: The fourth industrial revolution, driven by AI and robotics, is expected to significantly increase global energy demand, raising concerns about accommodating this growth while reducing emissions [3]. 3. **Carbon Dioxide Levels**: Atmospheric CO2 levels peaked at 430ppm this year, with an annual increase of nearly 3.5ppm, suggesting a potential rise above 500ppm by 2050 if current trends continue [3]. 4. **Renewable Energy Growth**: China is increasing its production of solar and wind energy at a rate that may outpace the growth in power demand, leading to a decline in coal consumption [7][19]. 5. **Coal Consumption Decline**: Coal demand for thermal power in China declined by 1% in the first nine months of 2025, with expectations for an overall decline in coal demand this year [8][10]. 6. **Electric Vehicle (EV) Adoption**: Electric vehicles account for over 57% of all vehicle sales in China, with projections for full electrification of light passenger vehicles by 2030 [24][30]. 7. **Battery Storage Investment**: China is investing heavily in energy storage solutions, expecting to add 170GWh of energy storage this year, which is double the previous year's rate [22][25]. 8. **Grid Upgrades**: The construction of 3,000km of ultra-high voltage transmission lines is underway to connect renewable energy sources in western China with demand centers in the east [22]. 9. **Decline in Oil Demand**: Oil demand in China is expected to remain flat or increase marginally, with gasoline demand peaking in 2023 [10][13][30]. 10. **Global Clean Energy Equipment Exports**: China is exporting US$15-20 billion per month in clean energy equipment, which is equivalent to exporting 12 million barrels of crude oil per day [37][38]. Additional Important Insights - **Tipping Point for Coal**: Despite ongoing coal plant construction, the utilization of these plants has fallen below 50%, indicating a shift in energy production dynamics [15][19]. - **Electrification of Transport**: The electrification campaign extends beyond cars to buses, trucks, and even ships, with over 90% of buses in China now electric [33]. - **Investment Opportunities**: The report highlights investment potential in batteries for energy storage, grid-related equipment, and nuclear energy as the shift to low carbon technologies accelerates [41]. This summary encapsulates the critical points discussed in the conference call, focusing on the energy sector's transition in China and its implications for emissions and investment opportunities.

Summary of China Lithium Market Conference Call Industry Overview - The focus is on the China lithium market, particularly lithium carbonate and its supply dynamics amid regulatory disruptions [1][2][3]. Key Insights 1. **Price Adjustments**: - Average spot price assumptions for China lithium carbonate have been increased by 3% for 2025E, 33% for 2026E, and 20% for 2027E [1]. - The current spot price for lithium carbonate rose by 18% to Rmb85,000/ton as of August 21, 2025, following supply disruptions [2]. 2. **Supply Disruptions**: - Significant supply risks identified, with approximately 240kt LCE (15% of 2025E global supply) at risk due to non-compliance in mining activities [2]. - Specific operations affected include: - Zangge Mining's operation in Qinghai (1% of global supply) suspended since July 14, 2025. - CATL's lepidolite mine in Yichun (5% of global supply) suspended since August 10, 2025. - Seven other lepidolite mines in Yichun (6% of global supply) at risk of disruption post-September 30, 2025. - Citic Guoan's lithium brine operations (3% of global supply) facing risks due to overproduction and expiring mining licenses [2]. 3. **Earnings Forecasts**: - Earnings forecasts for China lithium equities have been raised by 5%-250% for 2025E-2027E, reflecting the impact of supply disruptions [1]. 4. **Scenario Analysis**: - **Base Case**: Anticipates strict enforcement of mining rights investigations, leading to: - Zangge's suspension lasting 1-2 months. - CATL's suspension lasting approximately 12 months. - Other mines facing disruptions for 9-12 months post-verification [3][6]. - **Downside Case**: Exemption of suspensions during transitional periods, leading to a potential decline in lithium carbonate prices to Rmb70,000/ton in 2026E, with a 3-51% downside to EPS [4][7]. - **Upside Case**: Stricter enforcement could lead to prices reaching Rmb120,000/ton in 2026E, with a potential upside of 20-350% to EPS [4][8]. 5. **Market Dynamics**: - The report indicates a potential supply surplus of 8% in 2025E and 1% in 2026E, with expectations of lithium carbonate prices reaching Rmb100,000/ton in 2026E [3]. 6. **Long-term Demand**: - Projected growth in electric vehicle (EV) sales, with total EV sales expected to reach 25 million units by 2026E, driving increased demand for lithium [12]. 7. **Valuation and Risks**: - Valuation based on EV/EBITDA multiples, with key risks including execution of mining rights investigations, commodity price volatility, and regulatory changes [17]. Additional Insights - The report emphasizes the importance of monitoring inventory levels, which have decreased at lithium converters while increasing at downstream battery producers [11]. - The sensitivity of net profits for major lithium companies like Tianqi Lithium and Ganfeng Lithium is highlighted, indicating how price fluctuations can significantly impact profitability [15]. This summary encapsulates the critical points discussed in the conference call regarding the China lithium market, focusing on supply disruptions, price forecasts, and potential investment implications.

Summary of the Conference Call on China Lithium Industry Industry Overview - The conference call focuses on the **China Lithium Industry**, particularly the implications of recent regulatory investigations on lithium mining rights and their impact on lithium prices and supply dynamics [2][3]. Key Points and Arguments 1. **Price Increase**: The price of China GFEX lithium carbonate futures (Sept 2025 contract) rose to **Rmb72.8k/t** as of July 22, marking a **25% increase** from the previous month's low of **Rmb58.4k/t** [2]. 2. **Supply Disruption Concerns**: Market concerns about potential supply disruptions have escalated due to: - An investigation by the central government into mining rights. - Local government orders for certain companies, such as Zangge Mining, to suspend lithium production [2][3]. 3. **Regulatory Compliance Issues**: Many lithium mines are reportedly not compliant with regulations, lacking proper mining licenses or failing to pay required royalties. This non-compliance puts approximately **229kt LCE** of lithium supply at risk, with **120kt LCE** identified as high risk for short-term suspension [3][4]. 4. **Inventory Levels**: As of last week, there was an inventory of **142.6kt LCE** of lithium carbonate along the supply chain in China, which may be affected by the supply disruptions [4]. 5. **Short-term Outlook**: The anticipated supply disruptions are expected to be temporary, as production is likely to resume once operators comply with regulatory requirements [4]. Valuation Insights 1. **Price Forecast**: If the supply disruption of **131kt LCE** is confirmed, lithium carbonate futures prices could potentially rise to **Rmb100k/t** in the short term [5]. 2. **Top Picks**: The report identifies **Qinghai Salt Lake Industry (QSLI)** as the top pick due to its compliance with lithium mining rights, followed by **Tianqi Lithium** and **Ganfeng Lithium** [5]. Risks and Considerations 1. **Market Risks**: Key risks to the lithium sector include: - Volatility in commodity prices. - Regulatory changes. - Production disruptions [7]. 2. **Demand Risks**: Demand for lithium is primarily driven by sectors such as portable electronics and electric vehicle (EV) batteries [7]. Additional Important Information - The report emphasizes the importance of compliance with mining regulations and the potential financial implications for companies involved in lithium production [3][4]. - Analysts involved in the report include Sky Han, Sharon Ding, and others from UBS Securities Asia Limited, highlighting the expertise behind the analysis [6]. This summary encapsulates the critical insights from the conference call regarding the current state and future outlook of the China lithium industry, emphasizing the interplay between regulatory actions and market dynamics.

Core Insights - The lithium industry continues to face significant challenges, with major producers like Ganfeng Lithium and Tianqi Lithium reporting substantial losses and struggling with profitability due to low lithium prices and oversupply [3][9][19] Company Performance - Ganfeng Lithium expects a net loss of 300 million to 550 million yuan ($41.76 million) for the first half of 2025, which is an improvement from a 760 million yuan loss in the same period of 2024, but still indicates ongoing financial difficulties [3][4] - The company's expected loss, excluding non-recurring items, is projected to be between 500 million and 950 million yuan for the first half of 2025, significantly wider than the 160 million yuan loss reported in the previous year [4][10] - Investment gains from the disposal of energy storage projects contributed to a narrowing of the overall net loss, but these gains are not related to Ganfeng's core lithium mining and production business [5] Market Conditions - The average price for battery-grade lithium carbonate in China was 64,950 yuan per ton in mid-July, down 17.6% from the start of the year and nearly 90% from the peak price of 580,000 yuan per ton at the end of 2022 [11][12] - Oversupply in the lithium market, driven by increased production from new mining projects, has led to weak prices, while demand growth from electric vehicles is slowing [12][19] - Current spot prices are nearing the cost floor for many small and medium-sized producers, with production costs estimated between 50,000 and 60,000 yuan per ton [14] Competitive Landscape - Tianqi Lithium forecasts a net profit ranging from nil to 155 million yuan for the first half of 2025, recovering from a significant loss of 5.21 billion yuan a year earlier, but its operating profit excluding non-recurring items is expected to be much smaller [7][8] - Both Ganfeng and Tianqi are struggling with profitability, relying on factors outside their core lithium businesses to achieve any semblance of financial recovery [9][19] Investor Sentiment - Ganfeng's shares fell over 7% following its profit warning, reflecting investor surprise at the extent of the losses, although the shares are still up 19.7% year-to-date [16] - Long-term optimism remains as Ganfeng's shares have rebounded from around HK$19 to nearly HK$26, driven by hopes of a price bottom and policy support for EVs [17] - However, investment banks express skepticism about the sustainability of this rebound, with Morgan Stanley maintaining an "underweight" rating and UBS assigning a "sell" rating [18][19]

Summary of Key Takeaways from Battery Value Chain Conference Industry Overview - The conference focused on the global battery value chain, highlighting opportunities and risks within the industry, particularly in the context of electric vehicle (EV) and energy storage systems (ESS) demand [1][10]. Key Insights on Demand - **China's Battery Demand**: Remains robust with a projected growth of 40% year-over-year in 2025. The penetration of EVs in China is expected to reach 55-60% by 2025, with CATL holding a 44% market share [2][24]. - **Europe and US Markets**: Europe is showing improvement, but the US market is lagging. Samsung SDI anticipates only marginal growth in EV battery demand in the US, while ESS demand is expected to rise by 10-15% quarter-over-quarter [2][8]. - **Emerging Applications**: The EV truck market in China is projected to grow at a CAGR of 30% over the next five years, with significant opportunities in commercial vehicles [12][25]. Company-Specific Insights CATL - **Production Capacity**: CATL plans to triple its production capacity to reach 2TWh by 2030, with a CAGR of 20% [3][8]. - **Profitability**: CATL's net profit margins are expected to remain in the mid-teens, with stable unit profit guidance [4][27]. - **Technological Advancements**: Continues to improve battery energy density, lifecycle, and charging speed, while also exploring battery swapping solutions [5][27]. LG Energy Solution (LGES) - **Revenue Growth**: LGES has revised its full-year growth target to flat year-over-year due to tariffs and cautious OEM orders [2][8]. - **Capacity Plans**: LGES plans to mass-produce LFP ESS batteries in the US by 2Q25, with a focus on increasing plant utilization [21][28]. - **Profit Margins**: Expected to maintain mid-single-digit operating profit margins, with a potential low-single-digit loss if excluding AMPC costs [4][26]. Samsung SDI - **Market Performance**: Samsung SDI expects marginal growth in EV battery demand and a revenue increase of 10-15% for ESS batteries in 2Q25 [2][29]. - **Capacity Expansion**: Targeting a total large battery capacity of 120GWh by 2027, with significant contributions from its joint venture with GM [17][29]. - **Profitability Outlook**: Operating profit margins for large batteries are expected to improve to mid-to-high single digits [4][29]. Tianqi Lithium - **Production Plans**: Tianqi has no plans to reduce production despite potential losses due to high spodumene prices. It expects a reversal in supply-demand dynamics by 2026-2027 [6][24]. - **Market Conditions**: The company anticipates a reasonable lithium carbonate price range of US$15k-20k per ton [6][24]. Investment Implications - **Positive Outlook for CATL**: The company is expected to outperform due to its strong market position and aggressive capacity growth [8][23]. - **Cautious Stance on Korean Stocks**: Despite declining valuations, revenue growth and margins for Korean companies are expected to remain pressured in the near term [8][23]. Additional Considerations - **Battery Chemistry Trends**: Companies are increasingly focusing on LFP and lithium manganese-rich (LMR) chemistries to reduce reliance on traditional supply chains [21][22]. - **Solid-State Battery Development**: Companies are advancing in solid-state battery technology, with mass production targets set for 2027 and beyond, although high initial costs remain a barrier [20][22]. This summary encapsulates the critical insights and trends discussed during the battery value chain conference, providing a comprehensive overview of the current state and future outlook of the battery industry.

Summary of China Lithium Research Call Industry Overview - The report focuses on the **China lithium industry**, particularly the supply dynamics and production forecasts for lithium carbonate and hydroxide in 2025 and 2026 [2][3][4]. Key Points and Arguments 1. **Increased Supply Forecasts**: - China's lepidolite/spodumene supply is expected to exceed previous expectations, leading to a **5.9% increase in 2025E** and **4.5% increase in 2026E** global lithium supply [2][3]. - The updated forecast for **China lithium lepidolite production** in 2025 is **194kt LCE**, a **22% YoY increase**, significantly higher than the previous estimate of **124kt LCE** [3]. 2. **Inventory Levels**: - As of February 2025, the total lithium feedstock inventory is approximately **1.5 months**, with lithium carbonate inventory also around **1.5 months**, indicating a healthy supply despite strong demand from LFP batteries [2][3]. - Lithium hydroxide inventory remains stable but has a higher inventory duration of nearly **4 months** due to weaker demand for NCM batteries [2]. 3. **Demand Growth**: - China’s lithium demand is projected to grow by **51.9% YoY** in March 2025, with total lithium carbonate and hydroxide output expected to increase by **26% and 29% MoM**, respectively [4]. 4. **Market Dynamics**: - The supply growth in March slightly outpaces demand, indicating a potential shift in market dynamics where supply increases may limit price improvements during peak season [4]. - The report notes that lithium names in China are trading stronger than the lithium price itself, driven by potential catalysts like solid-state batteries [5]. Stock Implications - The report provides a **pecking order** for lithium companies based on their performance and market conditions: - **Qinghai Salt Lake Industry**: Buy - **Tianqi Lithium**: Neutral - **Ganfeng Lithium**: Sell [5]. Risks and Considerations 1. **Upside Risks**: - Stronger-than-expected EV sales and better-than-expected ESS battery shipments could drive demand higher [27][29]. - Potential supply disruptions could also impact market dynamics positively [27]. 2. **Downside Risks**: - An increase in lithium supply could lead to lower prices, especially if demand does not meet expectations [27][28]. - A prolonged downcycle in lithium prices could delay recovery in the sector [28][31]. Conclusion - The China lithium market is experiencing significant changes with increased supply forecasts and strong demand growth. However, the balance between supply and demand will be crucial in determining future price movements and investment opportunities in the sector. The report emphasizes the importance of monitoring inventory levels and market dynamics closely to identify potential risks and opportunities.