Vertical integration strategy of lithium-lithium battery enterprises

With the continuous development of the automotive electrification trend and the rapid growth of the power lithium battery industry scale, some lithium battery enterprise system and component companies have begun to show their willingness to vertically integrate upstream mining and mining processing.

Vertical integration of lithium battery companies

The vertical integration of lithium battery companies is no longer a new phenomenon (see Figure 1). Many companies (such as BHP, Rio Tinto, Anglo American, etc.) have a history of investment, extraction and processing of downstream companies in the value chain. Over time, many companies have divested these downstream industries, and similar companies such as Bluescope, Constellium, and Scaw Metals have been reborn. But vertical integration still exists in commodities such as aluminum (Rio Tinto), copper (Anglo American) and zinc (Glencore, Nyrstar).

Reduce downstream volatility

The price of lithium battery companies is volatile, and eliminating this volatility is one of the main reasons for vertical integration, especially when the ability to pass price fluctuations to downstream customers weakens. Price volatility is driven by changes in the relationship between supply and demand, but this volatility is asymmetric. From a microeconomic perspective, low prices are driven by marginal cash production costs (in the long run), but high prices are not. Arcelor Mittal, a global steel manufacturer, joined the production of iron ore and metallurgical coal in the late 21st century, partly because it hoped to reduce the cost volatility of its steel production.

Take advantage of increased profit margins

The collection and conversion of lithium battery companies into products requires intensive capital. This limits potential new entrants in the industry, and also because it has a relatively higher profit margin than other non-capital-intensive activities, thus creating a more dynamic market. In addition, minerals are not evenly distributed in the world, but concentrated in certain specific areas. In the steel and iron value chain, although iron ore and metallurgical coal are highly volatile, they often bring higher returns than steel. This is because iron ore and metallurgical coal have a better market structure, and only a small number of large producers are concentrated in a few countries to obtain privileged development and have independent assets. In contrast, the iron and steel industry tends to oversupply, the market is relatively fragmented, and the leading brands in each country are inconsistent.

Improvement of market channels

All businesses need to have customer channels, and the competitiveness of lithium battery business channels directly affects the return of each participant. The strong dominance of a certain link in the value chain will lead to uneven distribution of value shares, which may make the mining market channels face more challenges. For example, the smelting and trading of zinc and lead markets are dominated by a small number of large companies. If new participants in the zinc mining industry find that the return on their smelting business is higher than the returns given by the existing companies, they may choose to invest in their Smelting business (precondition for realistic and objective assessment of investment opportunities and competitiveness).

Promote commodity demand

Mining producers need to ensure steady growth in demand for their products. Increasing demand can bring about a larger sales market, while ensuring a balance between supply and demand and preventing excessive investment. Brazil produces nearly 90% of the world's niobium, and CBMM is the largest local niobium producer. Since its inception, CBMM has carried out a market development plan to invest in cooperation with its steelmaking customers to seek the development of new applications for niobium alloy steel, thereby increasing the demand for niobium. By the 2000s, the demand for niobium in concentrates had doubled from 30 kilotons per year (ktpa) to 60 kilotons per year (ktpa), after which such high demand continued.

Vertical integration of lithium battery companies in the mining market

After analyzing the four potential reasons for the vertical integration of the mining industry, let us turn our focus to the lithium battery enterprise market. There are cases of vertical integration in the cobalt, nickel and other mineral industries, and this article will focus on the lithium-based mineral industry.