Fresh volatility may hit the red hot global lithium market, potentially disrupting supplies of the critical metal needed for batteries that power the energy transition.
The Chinese financial news site Yicai reported today that government authorities from multiple ministries have launched a crackdown campaign on the country’s key lithium production hub of Yichun in Jiangxi province.
The officials are investigating environmental infringements, zeroing in on companies suspected of mining lithium without valid permits. The probe has forced ore processing operations to temporarily shut, according to Yicai.
That could spell trouble for the global lithium market. According to calculations by Chinese investment bank CITIC Securities, a monthlong shutdown of Yichun operations could slash worldwide lithium supplies by 13% (link in Chinese).
“Lithium chaos”
The crackdown comes less than two weeks after Caijing, another Chinese financial news outlet, published a widely circulated article (link in Chinese) detailing what it called “lithium chaos” as villagers reportedly dig deep trenches in local areas to illegally extract lithium-rich lepiodolite ore.
The dramatic surge in lithium prices since 2021, driven by a boom in domestic electric vehicle production, makes this a lucrative endeavor. According to Caijing, villagers could fetch up to 1,000 yuan ($144) from selling a day’s worth of mined ore, compared to local average monthly incomes of less than 1,600 yuan.
Now, authorities are intent on stamping out unlicensed mining activity to ensure environmental regulations are met, and to prevent illegal and wasteful mining practices of a national strategic resource.
Supply disruption and gyrating prices
It’s unclear how long manufacturing operations in Yichun will be halted as authorities carry out their probe.
The uncertainty comes as Chinese prices of lithium have tumbled to 12-month lows in recent weeks. Prices dipped below 400,000 yuan per ton on Friday (Feb. 24), having fallen over 30% since hitting a record high in November.
And in what some industry analysts see as a hedge against bearish projections of lithium prices, leading Chinese battery giant CATL recently struck a deal with select domestic EV makers. According to Chinese media reports and Reuters, CATL is offering certain Chinese car firms heavily discounted prices on its EV batteries if the automakers can commit to procuring the bulk of their batteries from CATL for three years. That could help CATL essentially put a floor on lithium prices, while cementing its dominance by locking in major customers.
But CATL could benefit from a rise in lithium costs, too, if operation disruptions persist as a result of the Yichun crackdown. The world’s largest EV battery maker with over 40% of global market share, CATL has also heavily invested in lithium mines worldwide, ensuring it a steady supply of the raw material at relatively stable prices. CATL has a minority stake in Australian lithium miner Pilbara Minerals and development rights to Bolivia’s lithium reserve, for example, as well as rights to various lithium projects in China.