Lithium Battery Industry Chain Continues To Soar, N-methyl-pyrrolidone (NMP) Leads Investment Boom

Li-ion battery industry chain continues to experience high prosperity

NMP consumption will continue to grow rapidly

N-Methylpyrrolidone (NMP),（N-Methyl-2-pyrrolidone）is a very important auxiliary material for the production of lithium-ion battery electrodes and is the most commonly used solvent in the front-end dosing process of lithium-ion batteries.

In the dosing stage, NMP is used as a solvent for PVDF to disperse the slurry, forming a homogeneous medium and maintaining the stability of the slurry for a long time within a certain viscosity range; in the coating stage, NMP is used as the main liquid carrier for the slurry and its good wettability and fluidity with the metal substrate helps the slurry to be evenly coated on the metal substrate with a stable thickness; in the coating and baking stage, NMP evaporates from the wet film drying process at a stable rate to form a porous microelectrode structure with a uniform pore size distribution. NMP can be used as a solvent for conductive slurry for lithium-ion batteries, in addition to the solvent for electrode coating slurry.

In the past 5-10 years, driven by the rapid development of the lithium-ion battery industry, NMP consumption has been growing rapidly. in 2022, China's NMP consumption will be about 1.52 million tonnes, of which, the lithium-ion battery sector will consume about 1.428 million tonnes, accounting for about 94.0% of the total national consumption.

In addition to lithium-ion batteries, NMP is used in electronic chemicals as a photoresist stripper and a cleaning agent for semiconductor display panels. In polymer synthesis, it is used as a reaction solvent for special polymers such as para-aramids, polyphenylene sulfide (PPS) and polyimide (PI). It is also used in insulating paints and other applications (pharmaceuticals, pesticides, petrochemicals, etc.).

In 2022, NMP consumption in electronic chemicals, polymer solvents, insulating paints and others (pharmaceuticals, pesticides and petrochemicals, etc.) will be 4.0, 23, 12 and 16 thousand tons, with consumption shares of 2.6%, 1.6%, 0.9% and 0.2%, respectively.

Driven by the rapid development of new energy vehicles in China, the market size of lithium-ion batteries, especially power batteries, will grow at a high rate, which in turn will drive the continued rapid growth of NMP consumption. It is expected that by 2025, China's NMP consumption will reach 3.44 million tons, with a CAGR of approximately 31.3% from 2022-2025. Among them, consumption in the field of lithium-ion batteries will grow the fastest, with a CAGR of 32.6% in 2022-2025, and the consumption share will reach 96.6%

NMP market demand is strong, but we need to be wary of increased competition in the market leading to a fall in profits.

The loss rate of NMP in the lithium-ion battery sector is small and the vast majority of NMP can be recycled, so the stock of NMP in the lithium-ion battery sector will continue to grow. However, when the stock reaches a certain level, the demand for synthetic NMPs will be reduced, so that the replenishment and depletion of NMPs in the lithium-ion battery sector will be balanced. The main source of synthetic NMP demand and growth is the "filling" demand of new lithium battery cell factories, and the demand for synthetic NMP will decline in the future if the expansion rate of cell factories is controlled.

In the next few years, downstream consumption, especially in the field of lithium-ion batteries, will continue to grow at a high rate. However, while the industry is unanimously optimistic about the rapid growth of NMP downstream consumption, there are many new entrants in the industry, which will inevitably increase the competition main body, and the existing NMP producers continue to expand production, the rapid growth of production capacity, the subsequent market competition will become more and more intense.

In 2021, influenced by the strong downstream demand for NMP and the lack of supply of upstream raw material 1,4-butanediol, the price of synthetic NMP kept rising, with the average price reaching about RMB40,000/tonne, and the price once exceeded RMB50,000/tonne in the second half of the year, overlapping with the overall tight supply of NMP to drive up the price of recycled NMP together, the profit of NMP enterprises continued to improve. However, in the future, we need to be alert to the risk of increased market competition and compressed profit margins.

In the future, with the rapid expansion of NMP synthesis capacity and even surplus, the industry competition will intensify, and then the enterprises with perfect industrial chain will have a competitive advantage.

At present, GBL, the raw material for NMP, is mainly derived from BDO dehydrogenation, while acetal BDO is subject to policy restrictions and will have a tight supply problem in the future. The competitiveness of maleic anhydride GBL may be improved (the current BDO route for GBL is slightly lower cost than the maleic anhydride route), so companies with maleic anhydride GBL production capacity will have certain raw material and industry chain advantages in the future.