Lithium production at CATL's mine in Yichun temporarily halts, causing a surge in share prices among lithium producers.
In a significant turn of events, Contemporary Amperex Technology Co. Limited (CATL) has temporarily halted production at its Jianxiawo lithium mine in Jiangxi province due to an expired mining permit [1][2][3][4][5]. This development has led to a noticeable increase in lithium prices in China, with spot prices for lithium carbonate currently standing at around RMB 70,000 per ton [1].
As of press time, China's most active lithium carbonate futures have risen by 8 percent to RMB 81,000 ($11,280) per ton, reflecting the upward pressure on prices caused by the mine suspension [2]. The Jianxiawo mine accounts for approximately 6% of global lithium production, making its halt a significant blow to the market [4][5].
The suspension is expected to last for at least three months, during which time CATL is actively negotiating with Chinese authorities to renew the permit [3]. However, the regulatory process involved typically spans several months, making the timeline for restarting production uncertain [1].
The immediate impact on lithium prices has been a rally, as the reduction in supply has come at a time when the market was already experiencing global oversupply [4][5]. However, CATL suggests the production halt will have a limited impact on its overall business, partly because of the company's broad mining investments and the current state of lithium demand and pricing dynamics [2].
The permit suspension aligns with the Chinese government’s crackdown on overcapacity to stabilize supply and prices in key sectors, including lithium mining [2][5]. This development occurs amidst a global shift impacting lithium supply, demand, and pricing, with concerns over geographical supply concentration and efforts to reduce oversupply by authorities [1][2].
In the broader context, the rapid development of China's EV industry has led to a significant rise in lithium prices in China. In November 2022, the price of battery-grade lithium carbonate reached RMB 590,000 per ton, a 14-fold increase from RMB 41,000 per ton in June 2020 [5].
The suspension of lithium production at CATL's mine is expected to have a temporary impact on the supply of lithium in China. However, the longer-term impacts will depend on regulatory outcomes and market responses [1][2][3][4][5].
Meanwhile, the surge in lithium prices and the suspension of production at CATL's mine may lead to increased demand for lithium from other producers. This could potentially offset the impact of the CATL mine's suspension, provided the demand can be met by other producers [4][5].
Interestingly, the suspension of lithium production at CATL's mine is seen as good news for China's lithium industry, which has been under prolonged price pressure [6]. The suspension could provide an opportunity for other lithium producers in China to fill the gap left by CATL, potentially improving the overall health of the industry [6].
Shares of lithium producers Tianqi Lithium (HKG: 9696) and CATL rose significantly, with Tianqi Lithium increasing nearly 11 percent and CATL rising slightly by 1.5 percent in Hong Kong [7].
References:
- Bloomberg
- Reuters
- South China Morning Post
- Cailian
- Electrive
- Nikkei Asia
- CNBC
- The temporary halt in production at CATL's Jianxiawo lithium mine, a significant contributor to global lithium production, has led to a rise in lithium prices in China.
- The suspension of production is a part of China's crackdown on overcapacity in key sectors like lithium mining, aimed at stabilizing supply and prices.
- Despite the suspension, CATL's production halt is expected to have a limited impact on its overall business because of the company's broad mining investments and current market conditions.
- The surge in lithium prices and the suspension of production at CATL's mine could potentially benefit other lithium producers in China, offering them an opportunity to fill the gap and improve the industry's overall health.
