China’s battery giant CATL (Contemporary Amperex Technology Co. Limited) has confirmed the suspension of operations at its lithium plant in Yichun, Jiangxi, alleviating concerns about a lithium surplus. Following this news, lithium producers in both Asia and North America saw significant stock price increases. Analysts have noted that lithium carbonate futures are at a new low, which might exacerbate losses for lithium mining companies, potentially leading to widespread production cuts.
The world’s largest lithium producer, Albemarle (NYSE: ALB), saw its stock price jump 17% on Wednesday, despite a nearly 60% decline over the past year. Similarly, Sociedad Quimica y Minera de Chile SA (NYSE: SQM) rose by as much as 12%. In Sydney, Pilbara Minerals’ stock surged by 17%, while China’s Tianqi Lithium, listed in Hong Kong, increased by 16%.
Lithium stocks have underperformed this year due to oversupply and slowed electric vehicle (EV) sales weakening demand from battery manufacturers. Pilbara Minerals’ shares closed at a two-year low on Tuesday.
A spokesperson from CATL stated that the company plans to adjust the lithium carbonate production in Yichun in response to recent lithium market conditions. CATL is the world’s largest EV battery manufacturer, holding a market share of 40%, with clients including numerous EV manufacturers like Tesla.
UBS analysts highlighted that this production halt will reduce China’s monthly lithium carbonate output by 8%, “helping to rebalance supply and demand.” In recent weeks, lithium concentrate production has already decreased by about 14%. UBS added that the suspension is positive for the lithium market, anticipating lithium prices to rise by 11% to 23% for the remainder of 2024. Lithium prices have dropped by about 60% over the past 12 months.
As the cost of lithium mining increases, balancing production costs with market prices has become a significant challenge for the lithium industry. CATL’s decision may prompt other companies in the sector to make similar adjustments, impacting the supply-demand dynamics of the entire lithium market.
In Australia, some lithium producers, including Arcadium Lithium and Core Lithium, have been forced to close high-cost mining sites. Global Lithium Resources Ltd., a mining development company, announced on Tuesday that it would immediately cut its project expenditures due to prolonged low prices. Additionally, Albemarle is halving processing capacity and pausing expansion plans in Australia.
According to analysts from Guotai Junan Securities, construction slowdowns and reduced capital expenditures at several projects, including Sal de Vida in Argentina, indicate signs of supply-side contraction. This is expected to suppress new supply forecasts for the next 2-3 years, potentially leading to an upward lithium price cycle by 2026. They also noted that lithium stock prices generally rise ahead of commodity prices, typically in advance by six to nine months.
