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Lithium Supply Shock: China Environmental Probe Shut Downs A Tenth of Global Supply

Amit Mishra

Feb 27, 2023, 01:46 PM | Updated 02:19 PM IST


Lithium Brine Project
Lithium Brine Project

Global Lithium supply is about to experience a new wave of disruption as Yichun city in China which accounts for around a 10th of the world’s supply faces sweeping closures due to environmental investigation.

Ore-processing operations in Yichun have been ordered to stop as investigators probe alleged violations at lithium mines, Yicai newspaper reported.

A month-long mining halt in Yichun would reduce lithium output between 8 per cent and 13 per cent, according to various analyst estimates, but it remains uncertain how long the immediate shutdowns will last.

Lithium Capital of Asia

Lithium is a vital element in electric vehicle batteries and Yichun city in Jiangxi province is known as the “lithium capital of Asia”. In 2021, the city produced 81,000 tonnes of lithium carbonate, more than a quarter of China’s total. 

Jiangxi province is a big source of extra supply, from a lithium-bearing mineral known as lepidolite.

All lepidolite mining in Yichun aside from those by a state-owned company have been suspended, but refineries are still operational, Dennis Ip and Leo Ho, analysts at Daiwa Capital Markets, said.

Skirting Regulation

Extracting lithium from low-grade ore generates a lot of waste including tailings and lithium feldspar powder, all of which needs treating.

Global lithium prices soared to a record high last year as demand from China’s booming EV industry outstripped production. It’s the kind of high-profit, high-demand environment that typically encourages miners to skirt regulations in any commodity market.

Notably, this is not the first time that firms in this Chinese region have been put under environmental scrutiny.

In August last year, Yichun’s Environment Protection Bureau (EPB) ordered Yongxing Materials, Yichun’s leading lithium refiner, to suspend production following an official investigation into pollution of the local river, the Jin.

However, this is a much wider crackdown, and involves officials from central government departments including the Ministry of Natural Resources.

Divided House

The latest probe injects a big dose of uncertainty into a lithium market that’s seeing prices cool — bringing some relief to EV manufacturers — as more global output emerges.

According to the report, Beijing officials will mainly look at violations at lithium mines and seek to guide the “healthy development” of the industry. The probe will largely target those mining without permits or with expired license, it said.

“This supervision may mean that the inspection and control over lepidolite mining in China will be more stringent in the future,” said Susan Zou, analyst at Rystad Energy. 


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