Stock Investment Logic 6: Supply-Demand Cycle Stock Valuation Model — A Case Study of the Lithium Industry

We can observe that what truly drives marginal changes in supply and demand is the portion of mines with the highest cash costs. When lithium prices fall too low—so that mining one ton results in a cash loss—these high-cost mines will be the first to halt production. During the period of comprehensive oversupply in 2024–2025, precisely such high-cost lithium mines underwent large-scale exit from the market. As illustrated in this chart, during the supply-demand equilibrium phase, the cash cost of lithium mining should bottom out near RMB 70,000–80,000 per ton. Examining carbonate lithium futures data, prices dipped below the cash-cost zone for only four brief months. Thus, once it is confirmed that lithium will not remain in a prolonged oversupply state, the cash-cost zone offers an exceptionally strong margin of safety. However, the 'safe' cash-cost range is not static: ore grades decline over time as mines age; newly developed low-cost mines come online; surging demand triggers the restart of high-cost mines—multiple factors like these all influence the reasonable cash-cost range, necessitating industry-specific analysis. Valuation Model and the Two-Stage Discounting Method Profit modeling and business segment breakdown have already been elaborated in prior articles, so we won’t repeat them here. Instead, we focus on how to reasonably value supply-demand cycle stocks based on expected profits. Entering at the bottom using the cash-cost method is generally straightforward and rarely requires formal valuation. The primary application of valuation models lies in estimating fair market capitalization when prices are elevated. The essence of this valuation approach blends the spirit of both the P/E method and the DCF (Discounted Cash Flow) method—the Two-Stage Discounting Method (discounting peak-cycle profits + discounting terminal market value): First, forecast annual profits at the cycle’s peak and discount each year’s profit at an appropriate rate, summing them up; second, after the peak ends, estimate the long-term profit midpoint using the P/E method, then discount that terminal market value back to present day; finally, add both components to arrive at today’s fair market capitalization. This valuation provides a rough risk warning at price highs and gives a general sense of share-price elasticity. However, the actual extent of the upward cycle still depends on real-time price action. Overall, selling too early is far preferable to riding a 'elevator'—i.e., buying high and selling low without realizing gains. Applying this to a concrete case, we use Ganfeng Lithium as an example. Ganfeng is relatively complex: part of its lithium salt output comes from owned lithium mines, part from externally purchased ore; meanwhile, its battery business remains largely opaque—only approximate estimates are feasible. Nonetheless, we tentatively constructed a lithium salt cost model—its precision is admittedly low; treat it as light entertainment. Assume that by H2 2026, carbonate lithium prices rebound modestly to RMB 200,000/ton, lifting the full-year 2026 average to RMB 170,000/ton; 2027 maintains a year of high prosperity at an average of RMB 200,000/ton; thereafter, the boom ends and prices retreat. We set the long-term sustainable profit midpoint at RMB 120,000/ton for carbonate lithium (current high-cost mines’ cash cost stands just above RMB 80,000/ton; factoring in depreciation and demand-driven commissioning of higher-cost mines, RMB 120,000/ton is actually a conservative—and even slightly low—estimate for the long-term profit midpoint). Based on this model, estimated profits are RMB 13.2 billion for 2026, RMB 20 billion for 2027, and RMB 13 billion annually starting in 2028 under the long-term price midpoint. Given lithium remains in a long-term demand expansion phase, we assume a 5-year CAGR of 15% (extremely conservative—current growth still exceeds 25%). Applying a 5-year CAGR of 10%, a reasonable P/E ratio is estimated at 18x (even for cyclical stocks exhibiting high growth, valuations must remain relatively restrained). A discount rate of 10% (i.e., discount factor = 0.9) is used, consistent with industry norms.

Up to 18-fold projected YoY growth! Three leading lithium miners post explosive Q1 earnings—rising lithium prices are not the sole driver.

Lithium Price Strength + Substantial Investment Gains Propel Three Leading Lithium Miners’ Q1 Results On April 20, Tianqi Lithium (002466.SZ) announced preliminary Q1 2026 results, forecasting net profit attributable to shareholders of RMB 1.7–2.0 billion, representing a year-on-year increase of 1,530.31% to 1,818.01%. Tianqi Lithium attributed the surge to multiple favorable drivers—including rapid development of the new-energy industry and robust downstream demand—which collectively lifted average selling prices across its core lithium products versus the same period last year. Additionally, as of the date of this earnings preview announcement, SQM—one of Tianqi’s key equity-method investees—had yet to release its Q1 2026 financials. Using internal financial modeling and third-party forecasts of SQM’s EPS, Tianqi estimated SQM’s Q1 performance would surge significantly, resulting in substantially higher investment income from SQM compared to last year. Tianqi’s product portfolio comprises two main categories: lithium concentrate and lithium chemical products. The latter includes battery-grade and industrial-grade lithium carbonate, battery-grade and industrial-grade lithium hydroxide, lithium chloride, and metallic lithium—widely applied across end markets such as new-energy vehicles, electric vessels, energy storage systems, aircraft, ceramics, and glass. According to data from the Lithium Industry Branch of the China Nonferrous Metals Industry Association: Battery-grade lithium carbonate averaged RMB 119,000/ton in early January 2026 and rose to RMB 157,500/ton by end-March—a quarterly increase of ~32.35%; industrial-grade lithium carbonate rose from RMB 118,000/ton to RMB 154,000/ton (~30.51%); and lithium hydroxide climbed from RMB 106,900/ton to RMB 157,500/ton (~47.33%). Leading lithium miners Ganfeng Lithium (002460.SZ) and Chenguang Mining (000408.SZ) likewise posted strong Q1 results, driven by rising lithium salt prices and substantial investment gains. Ganfeng Lithium forecasted Q1 2026 net profit attributable to shareholders of RMB 1.6–2.1 billion, turning from a loss last year into profitability. Ganfeng cited rapid global new-energy industry growth and strong downstream customer demand for lithium salts, which pushed up its lithium salt selling prices significantly year-on-year. Meanwhile, ramp-up of lithium resource projects improved its cost structure; and sustained growth in power battery and energy storage markets notably boosted output and sales volumes in its battery segment. Additionally, in Q1 2026, Ganfeng recorded a fair-value gain of approximately RMB 259 million from the appreciation of its PLS shares, partially hedged under its pre-established collar-option risk management strategy. Chenguang Mining has already published its Q1 report: revenue reached RMB 716 million, up 29.61% year-on-year; net profit attributable to shareholders totaled RMB 1.574 billion, up 110.60% YoY—far exceeding revenue growth. Chenguang disclosed that its average Q1 2026 lithium carbonate selling price (including tax) rose 102.70% YoY, while average cost of sales increased only 4.39% YoY—lifting lithium carbonate gross margin by 35.19 percentage points versus last year.

Albemarle Corp Stock: Is Lithium Demand Recovery Strong Enough to Unlock New Upside?

Apr 15, 2026

Albemarle Corp, a leading lithium producer, faces near-term oversupply challenges but remains poised for long-term growth. Analysts project global lithium demand will surge, supported by the company's strategic expansions and integrated business model.