Global lithium markets are surging after the world’s largest battery manufacturer, China’s Contemporary Amperex Technology (CATL), suspended operations at one of the country’s biggest mines. The shutdown followed after the Beijing administration blocked the mine’s permit to curb industrial overcapacity.
The Jianxiawo mine is no small working field. It accounts for an estimated 5-6% of global lithium production. Its licence expired last week, and authorities have so far declined to renew it.
CATL, which controls 37% of the worldwide market for battery-powered vehicles, stated that it would seek a new permit but acknowledged that the site would remain closed for at least three months.
Soaring prices
The shutdown immediately reflected in market tension. The price of lithium carbonate soared 8%, pushing the metal to its highest level since March. Consequently, the stock shares of lithium producers, such as Chinese Ganfeng Lithium, Tianqi Lithium, and Australian Liontown Resources, also surged.
While lithium is used for a wide range of applications, from heat-resistant glass to lightweight armor, its most extensive commercial use is in the production of rechargeable batteries for everything from smartphones to electric vehicles.
Analysts said the market rally mirrors not only concerns over a sudden drop in supply, but also speculation that Beijing could order further mine closures to help stabilize prices in an oversupplied market.
Peak in 2022
Lithium producers have been struggling with oversupply, as the uptake of electric vehicles falls short of expectations, a problem compounded by subsidy cuts in major markets like the US.
Since the peak in late 2022, prices have collapsed by nearly 90%, undermining profitability across the sector. Traders were expecting the move for weeks. Reportedly, some were flying drones over the mine site to gather intelligence as speculation mounted.
For CATL, which began developing its mines three years ago during the price boom to secure supply, the suspension marks a setback. However, it could also help restore market balance and, in turn, improve profit margins. A long-term impact isn’t expected.
