Australian lithium sector hoping to benefit as CATL mulls major mine closure
Australia’s beleaguered lithium sector is hoping the latest rumours of Chinese production cuts will prove true.
Reports from China in recent months had suggested that the nation’s world-leading lithium mining sector was looking to reduce output, creating a mini surge in prices for the critical metal before the downward pressure on prices returned when the cuts failed to eventuate.
This time, there appears to be more momentum behind forecasts that leading lithium producer Contemporary Amperex Technology (CATL) is considering closing down its giant Jianxiawo lepidolite mine in Jiangxi province.
Lithium sector jump
CATL’s Jianxiawo mine is seen as a major reason for the rapidly-growing lithium supply in China and news of its closure has led to strong buying across the lithium space.
UBS analyst Sky Han wrote that the unconfirmed CATL suspension would cut around 5,000 to 6,000 metric tons of China’s monthly lithium carbonate equivalent (LCE) production.
“It’s not the first time we’ve heard CATL cut or suspend lithium production in Jiangxi [but] we have a higher conviction this time,” Ms Han said in the report.
“According to our channel checks with several contacts, CATL finally decided to suspend its lithium lepidolite operation in Jiangxi after a meeting on September 10.”
Marginal-cost producer
On the basis of data from market researcher SMM, UBS claims the LCE spot price has been below CATL’s cash cost level since mid-July but had expected CATL’s focus to be more on overall battery margins.
In the end, however, it seems the accumulated losses and continuous downside risk on the lithium price have elicited a fairly standard response from a company that is a marginal-cost producer.
UBS expects CATL’s output cut – which would represent about 8% of China’s monthly LCE production – will help to achieve a supply-demand balance and have a positive impact on lithium prices, projecting them to rise between 11 and 23 percent by the end of 2024.