Why is China holding back domestic lithium production?
China's imports of Australian lithium are surging at the same time as domestic supply in Jiangxi has collapsed
China’s dependence on imported lithium is rising, not falling.
Production of battery-grade lithium carbonate from spodumene rock, mostly imported, rose 120% in April from a year earlier, while output from domestic lepidolite fell 40%, according to Mysteel.
Put another way, China is relying on increasing imports of mostly higher-grade Australian lithium rather than lower-grade domestic supply to meet the world’s rising demand for energy storage batteries and electric vehicles.
Lithium carbonate futures prices in China have risen by 38% this year. Yet Beijing is not rushing to bring domestic supply back to market.
The biggest question in the lithium market is why a mine owned by the largest Chinese battery producer CATL in Jiangxi remains shut nearly a year after production stopped. Restarting the mine would immediately dampen lithium prices since it has the capacity to produce around 100,000 tonnes LCE, making it one of the largest mines in the world.
Yet Beijing appears willing to tolerate tighter supply. The answer may be that China is no longer trying to maximise domestic lithium production. Instead, it is trying to maximise control over domestic lithium resources.
The CATL mine provides a real-world example of the trade-offs Beijing appears willing to accept as it tightens control over strategic minerals. Even one of China’s most important industrial companies worth 1.84 trillion RMB does not appear able to shortcut the process.
This month, Yichun Times, CATL’s mining subsidiary, applied to cancel the construction-land pre-approval it had obtained only last December for the Jianxiawo lithium project, and Jiangxi’s natural-resources department approved the deregistration.
Two analysts quoted in Chinese media interpreted the move similarly: the December land-use plan no longer matched CATL’s current project plan, requiring a compliance-stage resubmission before environmental and safety reviews could proceed.
SMM’s Zhu Jian described it as a project-plan adjustment rather than an abandonment of the mine, but estimated that re-running the approval process to actual restart would typically take one to one-and-a-half years, or longer. CATL said only that it was “not clear on the situation” but believed the company would not give up easily.
Lithium futures rose after the news, suggesting the market sees any restart as further away than previously expected. The obvious explanation would be that Beijing wants less lepidolite mining. But recent developments suggest something more complicated may be happening.
I’ll take a look in today’s edition.
Low-grade but in China
Lepidolite is a type of lithium-rich mica in ceramic clay but at a much lower grade than the mines in Australia. Jiangxi lepidolite ore typically contains only about 0.3%–0.4% Li2O, compared with Australian spodumene ore at roughly 1%–1.5% Li2O.
That means you need to mine a lot more rock to get the same amount of lithium. During the last lithium price spike in 2022 supply from the lepidolite mines in Jiangxi surprised the market, helping to lead to lithium’s price crash. But this also led to environmental concerns, especially around the waste disposal.
Originally mined for the ceramic clay industry Yichun in China’s Jiangxi province once aimed to become the “lithium capital of Asia.”
But many of the mines were permitted for ceramic clay mining and the government is ensuring they need to get new permits to mine lithium for batteries. This comes amid Beijing’s tightening of control over the country’s natural resources.
