The lithium industry in China is in a state of disarray as the nation’s leading production hub, which is responsible for around one tenth of the world’s supply, is facing widespread closures as a result of a government investigation into environmental violations.
The crackdown in Yichun, which is located in Jiangxi province, came after a local lithium frenzy that took place during the last year. At that time, miners rushed to meet the escalating demand for the substance that is used to make batteries and to capitalize on record global prices. They are currently dealing with an in-depth inspection carried out by officials from Beijing’s environmental protection agency.
According to a report in Yicai newspaper, authorities have issued an order to halt ore-processing operations in Yichun while they investigate allegations of infractions at lithium mines. According to the estimations of a variety of analysts, this puts at risk somewhere between 8% and 13% of the world’s supply, however it is unknown how much longer the emergency shutdowns will continue.
The investigation in China adds a significant measure of unpredictability to a market for lithium that is now experiencing a decline in pricing, which is providing electric vehicle producers with some measure of respite. The lithium-bearing mineral known as lepidolite was anticipated to constitute a significant portion of the additional supply coming from the province of Jiangxi in China.
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Said Susan Zou, analyst at Rystad Energy
“This supervision may mean that the inspection and control over lepidolite mining in China will be more stringent in the future”
Businesses such as Contemporary Amperex Technology Co. and Gotion High-Tech Co., who are both significant battery producers and have operations in Yichun, had their share prices drop by more than one percent on Monday. In spite of multiple phone calls and emails, neither company provided a remark.
According to analysts at Daiwa Capital Markets, Dennis Ip and Leo Ho, all lepidolite mining in Yichun has been banned with the exception of that which is carried out by a state-owned enterprise. However, refineries are still operating normally.
In 2018, global lithium prices reached an all-time high, breaking the previous mark set in 2017, as demand from China’s rapidly expanding electric vehicle industry outpaced supply. When there is a great demand for a commodity and there is also a large profit potential, miners are generally encouraged to bypass the laws of the commodities market.
Throughout the course of the previous year, several businesses had already been investigated for various infractions, including pollution-related occurrences. This is a far bigger crackdown, and it involves personnel from departments all over the central government, such as the Ministry of Natural Resources.
Growth in a Positive Direction
According to the Yicai report, the officials in Beijing would focus their attention mostly on infractions that have been committed at lithium mines in an effort to lead the “healthy development” of the business. According to what was found, the vast majority of its targets will be miners operating without permissions or with licenses that have expired.
According to Goldman Sachs Group Inc., the demand for lithium from the Chinese automobile sector has dropped by more than half in recent months. This remarkable reversal is expected to promote an even deeper decline in the price of lithium on the market. Since their high point one year ago, prices in China have fallen by more than 30 percent.
In a report published on Monday, experts from Citic Securities Co., including Bai Junfei, predicted that a mining halt in Yichun lasting one month would result in a reduction in output of lithium that was about comparable to thirteen percent of the world’s total supply. The amount was estimated to be 8% by Rystad Energy, which is a consultant.
“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.
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