Contemporary Amperex Technology Co., Limited (CATL), the world’s largest battery manufacturer, has confirmed the shutdown of its lithium mine in Yichun, southeastern China, after its operating license expired.
The closure, announced on Monday, immediately rippled through the global lithium market. The mine is a major player, producing about 6 per cent of the world’s lithium supply. In response, lithium prices surged 8 per cent at the close, while shares of international mining companies also climbed.
The shutdown had been anticipated for weeks amid speculation that Chinese authorities might refuse to renew the mine’s license.
In 2024, CATL held between 35 and 40 per cent of the global market for electric vehicle batteries, supplying both Chinese automakers and foreign manufacturers, including Tesla, Toyota, and BMW.
Although lithium is not a rare earth element, it remains a strategic and lightweight metal vital to lithium-ion batteries. These batteries power smartphones, laptops, and, critically, electric vehicles, making lithium a cornerstone of the global energy transition.
The market reaction was immediate and pronounced. Lithium carbonate futures on the Guangzhou Futures Exchange rose by the daily limit of 8 per cent, jumping from 75,000 yuan per ton to 81,000 yuan.
This spike underscored heightened demand amid tightening supply. In addition, stocks of major Chinese lithium producers surged, with Tianqi Lithium Corp. and Ganfeng Lithium Group Co. rising as much as 21 per cent. U.S. producers Albemarle Corp (NYSE: ALB) and Piedmont Lithium Inc (NASDAQ: PLL). also gained over 10 per cent in premarket trading.
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Production cuts may occur with regulatory scrutiny
Analysts warned that the mine’s closure could foreshadow deeper supply chain challenges in China’s lithium sector.
Some suggested that additional production cuts might occur if regulatory scrutiny increases. Furthermore, they noted that the uncertainty could deter investment in Chinese lithium projects, prompting global buyers to diversify supply sources.
Australian lithium stocks also rallied in response to the news. Producers such as PLS Ltd. (ASX: PLS) (OTCMKTS: PILBF) and Liontown Resources Ltd. (ASX: LTR) (OTCMKTS: LINRF) recorded share price increases of 20 per cent and 25 per cent, respectively. This surge highlighted the interconnectedness of global lithium markets. Additionally, it showcased the ability of Australian producers to benefit from disruptions in China’s output.
The closure’s implications extend well beyond immediate price gains. China’s government may introduce stricter regulations on lithium mining as part of its anti-involution strategy. This initiative targets overcapacity and aims to foster sustainable growth. Regulatory inspections in regions like Yichun have already uncovered compliance issues, especially regarding registration and approvals. Therefore, analysts believe the government may limit future production to ensure environmental and operational standards are met.
If additional mines close, global supply could tighten further, intensifying competition for available lithium. Accordingly, electric vehicle manufacturers might face higher costs, forcing them to rethink procurement strategies. Furthermore, battery producers outside China could gain a competitive edge if they secure alternative supply chains.
Market experts stressed that while prices could remain elevated in the short term, long-term trends depend on supply-demand balance. Additionally, they cautioned that the lithium market has been volatile, shaped by both oversupply phases and rapid demand growth, particularly in the EV sector. Historical patterns suggest that price spikes often encourage new production, which can eventually cool the market.
