Lithium prices have experienced a significant rebound, primarily driven by China’s crackdown on illegal mining activities rather than increased demand from battery or electric vehicle manufacturers, according to CBA’s Vivek Dhar. Specifically, spodumene prices have jumped 34 per cent since early July, reaching $US840 a tonne. This surge comes as Chinese authorities target environmental and licensing violations in key lithium mining provinces such as Jiangxi and Qinghai.
Dhar suggests that the recent increase indicates the lithium price cycle has likely bottomed out, assuming China’s crackdown effectively reduces lithium supply. He also cautions about a potential pullback in prices due to latent lithium supply that could become available in response to higher prices. This latent supply refers to projects that were previously delayed or put on hold following the price decline since the end of 2022.
The crackdown is part of a broader initiative by Beijing to reduce overcapacity and stabilise margins across various industrial supply chains, including lithium chemicals and electric vehicles. Dhar notes that some miners may have bypassed stricter rules by misclassifying lithium deposits during the previous price surge. While lithium carbonate and hydroxide prices have also seen increases, cathode makers are reportedly hesitant to purchase at current levels, indicating that demand remains soft.
Dhar explains that these supply-side reforms aim to improve margins and alleviate deflationary pressures impacting China’s economy. He points out that China has implemented similar reforms in the past, specifically from 2015 to 2018, targeting sectors with high state ownership, such as steel and coal. However, this time, policymakers have broadened their focus to include sectors with lower state ownership.
