Lithium Bear Market Over? UBS Says Chinese Battery Giant Curbs Production

Western electric vehicle demand downgrades in the last 1.5 years have been one of the driving forces behind lithium prices collapsing from a peak in late 2022 into a nasty bear market. Oversupply of the critical battery metal has since become a significant concern in recent quarters as EV demand flounders in a period of high interest rates and elevated automobile prices. However, there is good news: China’s monthly lithium carbonate production is set to fall, and this production downshift has already started pushing prices upward.

On Tuesday, UBS analyst Sky Han revealed that Chinese battery giant Contemporary Amperex Technology Co. halted production at a major mine in Jiangxi province, easing oversupply fears for the silvery-white metal.

“According to our channel checks with several contacts, CATL finally decides to suspend its lithium lepidolite operation in Jiangxi after a meeting on 10 September,” Han said. 

She estimated the mine’s closure could slash about 8%, or 5k to 6k metric tons of China’s monthly carbonate production:

“CATL’s suspension of lithium operation in Jiangxi will lead to 8% or 5-6kt LCE production cut of China monthly Li2CO3 production, and help rebalance the supply with demand.” 

“After making a loss for two months in lithium business and continuous downside risk on lithium price, we finally see normal supply response from a marginal-cost producer,” she said. 

The analyst expects an 11%- 23% upside in the Chinese lithium price for the rest of the year. Prices jumped 5.6% to about 75,500 yuan per ton on Wednesday. Prices have slid 88% during the EV downturn that began in late 2022. 

Han cautioned that past rumors about suspended mine operations were inaccurate:

“It’s not the first time for us to hear CATL to cut/suspend lithium production in Jiangxi. Although the previous news turned out to be speculation, we get higher conviction this time.” 

Meanwhile, lithium stocks from Australia to China surged (courtesy of Bloomberg):

• Australia: MinRes up 16%, Liontown +13%, IGO +11%, Pilbara +4.9%, Arcadium Lithium +11%
• China: Ganfeng Lithium, Tianqi up by maximum 10% in China, Chengxin Lithium gains as much as 7.2%

Tribeca portfolio manager Ben Cleary told Financial Review, “The rally we’re seeing today is almost 100 percent short covering,”  adding, “Supply coming out of the market is exactly what the lithium market needs, so there is plenty of room for this rebound to run given how hard the stocks have been hit.”