Supply Cut Expected after Chinese Lithium Investigation

An investigation into illegal mining in China's lithium hub may reduce the global supply of the battery's raw material by 13 percent this month, potentially propping up prices that have plummeted from all-time highs, Reuters reported on Monday, Feb 27.

Late on Friday, Yichun, a city in southern China that is recognized as Asia's lithium capital and produces around 29 percent of the country's lithium salt, announced that it would be taking action against illegal activities like unlicensed and environmentally harmful mining.

A working group from the central government is set to investigate the sector.

Although the Yichun government did not indicate whether producers could maintain operations throughout the investigation, two Yichun-based lithium firms told Reuters that they had halted mining.

Yichun has an annual lithium extraction capacity of 150,000 tons of lithium carbonate equivalent (LCE).

Citic Securities Research analysts predicted that mining activities in the city would likely be discontinued for a month, resulting in cutting approximately 13,000 tons of LCE from global supplies. This figure is equivalent to roughly 13% of the world's overall supply in a given month.

Lithium salt producers and analysts said the investigation was likely to support prices, which have already fallen in recent months because of slowing electric vehicle (EV) sales in China. Since mid-November, spot lithium carbonate prices in China have dropped 34.3% to less than 400,000 Yuan ($57,553.13) a ton.

Two companies with lithium mining businesses in Jiangxi province where Yichun is located, including Ganfeng Lithium and Jiangxi Special Electric Motor, also saw a drop in shares on Monday, Reuters reported.

One of the producers said mining was expected to continue after China’s annual parliament meeting that starts on March 5 and can last for more than 10 days.

Reuters said Yichun’s Bureau of Industry and Information Technology declined to comment on the matter.