Since the end of 2022, lithium spot prices have plummeted by nearly 90%, forcing mine shutdowns and project delays worldwide. However, the most-watched event in the lithium industry so far is perhaps the recent shutdown of a lithium mine owned by CATL. Contemporary Amperex Technology Co. Ltd. (CATL), the world’s largest battery manufacturer whose clients include automotive giants like Tesla, Volkswagen, and BMW, halted operations at a lithium mine in Yichun, Jiangxi, which accounts for 5% to 6% of global supply.
Some brokerage reports suggest that during a downturn with oversupply, the shutdown or cutback of large mines is an important sign that the industry is bottoming out.
In March 2024, Ali Haji, CEO and Director of Mongolia’s first brine lithium exploration and development company, Lithium ION Energy Ltd. (TSXV: ION, OTCQB: IONGF, FRA: ZA4), stated in an interview with “Metals 100” that the company strives to be an important participant in the clean energy revolution, serving the growing global demand for lithium. ION’s flagship Baavhai Uul lithium brine project represents the largest and first lithium brine exploration licence award in Mongolia, with other projects including Urgakh Naran in Mongolia and Bliss Lake in Canada.
The unexpected shutdown of a major Chinese lithium mine caught the industry by surprise, prompting analysis on whether this move could reverse the prolonged price slump in the battery material market. However, the stock market reacted positively first, with shares of lithium producers surging globally—from China to Australia and across North America—including world-leading lithium miners like Albemarle (NYSE: ALB) and Sociedad Quimica y Minera de Chile SA (NYSE: SQM).
Lithium prices also soared, with lithium futures on the Guangzhou Futures Exchange rising nearly 9%.
Alice Yu, the lead metals and mining research analyst at S&P Global Commodity Insights, noted that CATL, as the world’s largest battery producer, has intensified expectations for prolonged weakness in downstream demand by suspending operations, thus amplifying the signaling effect.
UBS analysts indicated that CATL’s suspension of its Jiangxi Yichun lithium operations would reduce domestic lithium carbonate monthly output by 8%, which is equivalent to a reduction of 5,000 to 6,000 tons of lithium carbonate equivalent (LCE) per month. This shutdown will help address the surplus expected by 2025 and rebalance supply and demand. UBS stated that this shutdown is positive for the lithium market, expecting lithium prices to rise by 11% to 23% for the remainder of 2024.
Citibank indicated that lithium prices could rebound by as much as 25% in the next three months due to the mine shutdown. However, the bank warned that the price increase might quickly trigger a supply response, hindering market rebalancing and thus curbing the upward momentum.
Nevertheless, several institutions suggest that future lithium carbonate prices might stabilize with fluctuations at the bottom, with the oversupply market pattern unchanged, making it difficult for lithium carbonate prices to have a sustained upward trend. For example, Daiwa Capital Markets analysts Leo Ho and Dennis Ip noted that estimates of the impact on lithium output “may be a bit aggressive,” finding it hard to believe that CATL maintained such high output before the curtailment.
