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China’s lithium industry is reeling as its main production hub, responsible for around a tenth of the world’s supply, faces sweeping closures amid a government investigation into environmental breaches.
The crackdown in Yichun, Jiangxi province, follows a local lithium frenzy over the past year as miners rushed to meet rampant demand for the battery material and profit from record global prices. Now, they are dealing with a close inspection by environmental officials sent from Beijing.
Ore processing operations at Yichun have been ordered suspended while investigators investigate alleged violations at lithium mines, the Yicai newspaper reported. That threatens between 8% and 13% of global supply, according to various analyst estimates, though it’s unclear how long the immediate lockdowns will last.
The investigation in China injects a large dose of uncertainty into a lithium market that is seeing prices cool, providing some relief for EV makers as more global production emerges. Jiangxi province was expected to be a big source of additional supply, from a lithium-bearing ore known as lepidolite.
“This supervision may mean that the inspection and control of lepidolite mining in China will be stricter in the future,” said Susan Zou, an analyst at Rystad Energy.
Companies with operations in Yichun include major battery makers Contemporary Amperex Technology Co. and Gotion High-Tech Co., whose shares fell more than 1% on Monday. Neither firm responded to calls and emails for comment.
mining boom
All lepidolite mining at Yichun has been halted, except for that by a state-owned company, but the refineries remain operational, said Dennis Ip and Leo Ho, analysts at Daiwa Capital Markets.
Global lithium prices soared to a record high last year as demand from China’s booming electric vehicle industry outstripped production. It’s the kind of high-demand, high-profit environment that typically encourages miners to skirt regulations in any commodity market.
Some companies had already been the target of violations, including pollution incidents, over the past year. This is a much broader crackdown and involves officials from central government departments, including the Ministry of Natural Resources.
healthy development
Beijing officials will mainly observe violations at lithium mines and seek to guide the “healthy development” of the industry, according to the Yicai report. It will largely target those miners without permits or with expired licenses, he said.
According to Goldman Sachs Group Inc., demand for lithium from the Chinese auto industry has more than halved in recent months, a dramatic shift that will fuel a further decline in the market. Prices in China have fallen more than 30% from last year’s peak.
A month-long mining halt at Yichun would cut lithium production by an amount equivalent to around 13% of the global total, analysts including Bai Junfei of Citic Securities Co. wrote in a note Monday. Rystad Energy, a consultancy, estimated the amount at 8%.
“Currently, market speculation is that the investigation may stop after the two sessions in China next month,” Rystad’s Zou said, referring to the annual parliamentary meetings scheduled for early March.
–With assistance from Alfred Cang and Jason Rogers.
(Updates throughout)
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