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FYI ,from the AFR.

China lithium probe shuts down chunk of global supply

Alfred Cang

Feb 28, 2023 – 7.27am

Singapore | China’s lithium industry is reeling as its top production hub – responsible for about a 10th of the world’s supply – faces sweeping closures amid a government probe of environmental infringements.

The crackdown in Yichun, Jiangxi province, follows a local lithium frenzy over the past year as miners raced to feed rampant demand for the battery material – and to benefit from record global prices. Now, they grapple with a close-up inspection by environment officials from Beijing.

The Chinese car industry’s demand for lithium has fallen by more than half in recent months. AP

Ore-processing operations in Yichun have been ordered to stop as investigators probe alleged violations at lithium mines, Yicai newspaper reported. That threatens somewhere between 8 per cent and 13 per cent of global supply, analysts say, although it is unclear for how long the immediate shutdowns will last.

The probe in China injects a big dose of uncertainty into a lithium market that’s seeing prices cool – bringing some relief to EV manufacturers – as more global output emerges. Jiangxi province was expected to be a major source of extra supply, from a lithium-bearing mineral known as lepidolite.

“This supervision may mean that the inspection and control over lepidolite mining in China will be more stringent in the future,” said Susan Zou, analyst at Rystad Energy.

Companies with operations in Yichun include major battery manufacturers Contemporary Amperex Technology and Gotion High-Tech, whose shares both fell more than 1 per cent on Monday. Neither company was immediately available for comment.

All lepidolite mining in Yichun aside from those by a state-owned company have been suspended, but refineries are still operational, Dennis Ip and Leo Ho, analysts at Daiwa Capital Markets, said.

A local media outlet said on Tuesday that some mines have been allowed to restart since the probe started. All mines with valid government permits have resumed production, Cailian reported, citing unnamed sources at mining companies, adding that the investigation was targeting smaller-scale operators.

Soaring prices

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-profit, high-demand environment that typically encourages miners to skirt regulations in any commodity market.

Some companies had already been targeted for infringements, including incidents of pollution, over the past year. This is a much wider crackdown, and involves officials from central government departments including the Ministry of Natural Resources.

The Beijing officials will mainly look at violations at lithium mines and seek to guide the “healthy development” of the industry, the Yicai report said. It will largely target those mining without permits or with expired licenses, it said.

Goldman Sachs says the Chinese car industry’s demand for lithium has fallen by more than half in recent months, a reversal that will further drive a slump in the market. Prices in China have dropped more than 30 per cent from last year’s peak.

A month-long mining halt in Yichun would reduce lithium output by an amount equivalent to about 13 per cent of the world’s total, analysts including Bai Junfei at Citic Securities wrote in a note on Monday. Rystad Energy, a consultancy, estimated the amount at 8 per cent.

“At present, the market speculation is that the probe may stop after the two sessions in China next month,” Rystad’s Zou said, referring to the annual parliamentary meetings due early March.

Lithium producers in North America gained on Monday morning (Tuesday AEDT), with Albemarle rising as much as 2.9 per cent and Livent advancing 2.6 per cent.

Analysts said the shutdown of the lithium production hub in China may do little to help prices of the metal rebound from a recent decline, at least in the near term.

“Any mine would typically have a stockpile of ore in place, so as long as the refineries are operating, you aren’t likely to see any whipsaw in lithium pricing,” said Chris Berry, president of House Mountain Partners, an industry consultancy. “Should these mines be halted for months, then this becomes a different story.”