BEIJING (Reuters) – An investigation into illegal mining in China’s lithium hub could cut global supply of the battery raw material by 13% this month, analysts said on Monday, potentially supporting prices that have plunged from record highs.
The city of Yichun in southern China, which produces about 29% of the country’s lithium salt and is known as Asia’s lithium capital, said late on Friday it was cracking down on criminal activity, such as unlicensed and environmentally-damaging mining.
Financial news outlet Yicai reported on Sunday that the central government had also sent a working group to investigate the sector.
The Yichun government did not specify whether producers could continue operating during the investigation, but two Yichun-based lithium companies told Reuters on Monday that they had suspended mining.
Yichun has an annual lithium extraction capacity of 150,000 tonnes of lithium carbonate equivalent (LCE).
Analysts at Citic Securities Research said they assumed mining in the city would be halted for a month, removing around 13,000 tonnes of LCE from global supplies, adding that equated to about 13% of the world’s total supply in a given month.
One of the producers said mining was expected to resume after China’s annual parliament meeting that opens on March 5, and can last for more than 10 days.
Yichun’s bureau of Industry and Information Technology declined to comment on the enquiry, while lithium salt producers and analysts said it was likely to support prices, which have fallen in recent months because of slowing EV sales in China.
Since mid November, spot lithium carbonate prices in China have dropped 34.3% to less than 400,000 yuan ($57,553.13) a tonne.
After a slight recovery, driven by news of the investigation, futures prices closed lower on Monday.
The most-traded lithium carbonate contract on China’s Changzhou Zhonglianjin E-Commerce platform rose by as much as 3.4% in early trade before closing down 3.2% at 344,000 yuan a tonne.
Shares of companies with lithium mining businesses in Jiangxi province where Yichun is located, including Ganfeng Lithium and Jiangxi Special Electric Motor, also fell on Monday.
($1 = 6.9501 Chinese yuan renminbi)
(Reporting by Eduardo Baptista and Siyi Liu. Additional reporting by Beijing Newsroom; Editing by Jan Harvey and Barbara Lewis)
