Mining suspensions at Chinese lithium hub to lift market optimism in short term

A slew of suspensions hitting illegal mining operations in China's lithium production hub of Jiangxi is expected to set a bullish tone for markets in the short term and pause a recent downtrend in prices, market sources said Feb. 28.

Several mining and related operations of lithium chemical producers in the Yichun city of Jiangxi province were suspended due to noncompliant procedures, local media reported earlier.

The move came after the central government sent a working group to investigate environmental protection and illegal mining in the lithium hub. Lithium has taken a centerstage in China's energy transition story as the mineral plays an important part in the development of electric vehicles.

Lithium carbonate prices skyrocketed in the past two years on the back of robust growth in China's EV industry, triggering a spate of unlicensed operations that has been blamed for environmentally damaging lithium ore mining in Yichun.

The Yuanzhou district of Yichun has also announced a monetary award to individuals who divulge illegal mining information, in a bid to crack down on such practices.

Yichun is home to 11 lithium salts producers with a total designed capacity of 192,400 mt as of June 30, 2022, a report released by the state-owned Yichun Daily showed.

Yichun, which has rich lepidolite resources, has lithium oxide reserves of nearly 2.58 million mt, taking up 23.6% of the country's total. Lepidolite is one of the important raw materials to produce lithium salts.

Market reaction

Platts assessed battery-grade lithium carbonate at Yuan 380,000/mt ($54,794/mt) Feb. 27 on a DDP China basis, remaining unchanged for the second straight day. The prices have been on a downtrend since mid-November, falling 35.6%, or Yuan 210,000/mt, compared with the record seen on Nov. 11, 2022, according to S&P Global Commodity Insights data.

While the mining suspension news is expected to fuel bullishness, market fundamentals have remained unchanged so far.

Lithium chemical prices will likely continue to drop as an overall bearishness still prevails in the market, although the move initially will cause some fluctuation in sentiment, said a local lithium chemicals producer.

The miners with legal licenses would continue operations since it is impossible to totally stop production of lepidolite as it is a critical resource, however, it is also important to regulate illegal mining because it will cause a lot of environmental damage, he added.

"Those that are operating illegally will find it harder to get the certificate afterward and the main target of this investigation is on those illegal mining operators," said a China-based trader, adding that the impact from the suspension would be limited.

Downstream consumers have been adopting a wait-and-see stance.

Some sources said it would be challenging for demand to rebound this quarter, expecting a recovery only by the second quarter.

Market observers continue to watch when suspended miners would be able to resume production, sources said.

Raw material supply could become slightly tight if suspensions and related developments in Yichun last for a month, sources said.