Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
An unexpected shutdown at one of China’s biggest lithium mines has left the industry scrambling to judge if the move will be enough to end the battery material’s prolonged price slump.
The share prices of lithium miners from Australia to South America spiked Wednesday after reports that Contemporary Amperex Technology Co. Ltd., the world’s biggest battery producer, was suspending a mine that accounts for about 5% to 6% of global supply. Citigroup Inc. boosted its price forecasts, while Chinese futures for the metal surged.
Lithium spot prices have tumbled almost 90% since late 2022, forcing mine closures and project delays worldwide, but CATL’s shutdown in the southeastern Jiangxi province is one of the most notable to date.
The project is important not just for its size, but because it’s owned by a battery producer, and was thought to be a less likely candidate for closure. It also produces lithium from lepidolite — a low-grade ore that emerged as a major source of the metal in recent years, fueling the glut.
“There is a stronger signaling effect from CATL’s cut,” said Alice Yu, lead metals & mining research analyst at S&P Global Commodity Insights. “As the world’s largest battery producer, its mine-side suspension reinforces the expectation of a prolonged weakness in downstream demand.”
Battery metals — including lithium, cobalt and nickel — have had a torrid time as a flood of new production overwhelmed demand. While lithium is still likely to be needed in much greater quantities over the coming decades, a rush of mining and a slowdown in the pace of electric-vehicle adoption has battered prices in the short term.
The shutdown of the mine was revealed in a note from UBS Group AG that cited channel checks with contacts, which said that CATL suspended the operation. The battery producer responded by saying its plans to adjust its lithium carbonate production at the mine in Yichun.
The move “is positive but we will need to see more supply come out to solve our 2025 surplus,” UBS analysts including Sky Han said in a note. “Key will be how the broader China lepidolite supply story evolves.”
Lithium prices could bounce by as much as 25% in the next three months due to the suspension of the mine, Citi said in a note. But the bank cautioned those gains could fade as “higher prices are likely to incentivize a supply response quickly,” delaying a rebalancing of the market.
Other analysts were more cautious on the likely impact.
Estimates of on how much lithium output will be affected “may be a bit aggressive,” Daiwa Capital Markets analysts Leo Ho and Dennis Ip said in a note. “It is hard for us to believe that CATL has been running at such a high output before the curtailment.”
Lithium futures on the Guangzhou Futures Exchange surged nearly 9% on Wednesday on the CATL news. Australian miners were among the biggest movers. Pilbara Minerals Ltd. shot up 21% over Wednesday and Thursday. However, Chinese producer Ganfeng Lithium Group Co. was lower on Thursday after jumping in the previous session.
The Chinese lithium market is heading into what should be a busier season for demand from EVs and electronics, and some analysts were already expecting a bounce in prices anyway. But the slowdown in EV sales growth may continue to be a headwind.
“Prices could see a temporary respite from a culmination of mine-side cuts, and a seasonal demand spike,” S&P Global’s Yu said. “However a sustained market surplus through to 2027 will weigh on the lithium price upside.”
Read More: Lithium miner stocks soar as CATL adjusts output at key mine
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