China Lithium Probe Shuts Down a Tenth of Global Supply

Bloomberg News
Mon, February 27, 2023 

China Lithium Probe Shuts Down a Tenth of Global Supply


(Bloomberg) --

China’s lithium industry is reeling as its top production hub — responsible for around 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’re grappling with a close-up inspection by environment officials sent from Beijing.

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% and 13% of global supply, according to various analyst estimates, although it’s 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 Co. and Gotion High-Tech Co., whose shares both fell more than 1% on Monday. Neither firm responded to calls and emails for comment.

Mining Boom

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.

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.

How a Battery Metals Squeeze Puts EV Future at Risk: QuickTake

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.

Healthy Development

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

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

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

“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 Shares

Lithium producers in North America gained Monday morning, with Albemarle Corp. rising as much as 2.9% and Livent Corp. advancing 2.6%.

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.”

--With assistance from Alfred Cang and Jason Rogers.

Beijing investigating illegal mining activities in Chinese lithium hub, report says

PUBLISHED SUN, FEB 26 2023

Workers are seen at the production line of lithium-ion batteries for electric vehicles (EV) at a factory near Shanghai, China.

Reuters

China’s central government has sent a working group to probe illegal mining in the country’s lithium hub Yichun, financial news outlet Yicai reported on Sunday.

Yicai, citing sources, said the probe comes amid a “shutdown and rectification” of lithium producers in Yichun, a small city in southern Jiangxi province known by some as Asia’s lithium capital.

News of the probe follows a Yichun local government announcement on Friday that it was cracking down on criminal activity in the lithium battery industry, such as unlicensed and environmentally damaging mining.

Yichun has 1.1 million tons of lithium oxide reserves and accounts for 12% of global output, according to the South China Morning Post.

One lithium analyst, who declined to be named, told Yicai that the industry optimistically estimates that the shutdown will last for about a month.

Yichun currently produces between 10,000 tons and 12,000 tons of lithium carbonate per month, it reported. “If production is suspended for a month, the affected scale may account for about 10% of the global market,” the analyst said.

Lithium batteries are a key component in electric vehicles, demand for which has grown rapidly in recent years as climate-conscious consumers snap up cars with electric powertrains amid soaring fuel prices.

Yichun’s rich lithium reserves have led to a rapid expansion of the city’s mining industry that has brought large tax revenues to the local government.

But the industry has also been plagued by over-mining and under-regulation, leading to environmental issues such as local water sources being polluted with thallium, a toxic metal.

The world’s largest battery maker CATL is one of many Chinese conglomerates that own assets in Yichun.

Last December several companies in the city’s lithium industry halted production as the local government investigated the water quality of a river that supplies residents.