Mine Closure in China Sparks Lithium ETFs Rally
Sprott Lithium Miners ETF LITP was the biggest winner in the lithium ETF space, jumping more than 14% on the day. iShares Lithium Miners and Producers ETF ILIT and Themes Lithium & Battery Metal Miners ETF LIMI rose 11.4% and 9.9%, respectively. Global X Lithium & Battery Tech ETF LIT gained 5.5% (read: Lithium ETF (LIT) Hits a New 52-Week High).
What Happened?
Contemporary Amperex Technology (CATL), the world's largest EV battery manufacturer, halted operations at the Jianxiawo mine after its mining permit expired. The mine, the largest in China's Yichun lithium hub, accounts for about 6% of global output and controls more than one-third of the global EV battery market, with Tesla TSLA among its largest customers.
The company expects the closure to last about three months while it seeks license renewal, Bloomberg reported. Analysts say the abrupt cut could shake domestic supply chains while benefiting foreign producers. In the short term, sudden supply disruptions will heighten price volatility, strain China's battery industry and support overseas lithium miners.
Morgan Stanley estimates that the planned 60,000 tonne surplus in 2025 may narrow, pushing prices upward.
The industry is already grappling with oversupply and softer electric vehicle demand, worsened by President Donald Trump's rollback of U.S. EV incentives. Analysts suggest the Jianxiawo closure could help rebalance the market and bolster prices in the near term.
Long-Term Deficits on the Horizon
After the lithium oversupply of 2023-2024, the market is set to tighten. Fastmarkets expects production cuts and accelerating consumption to narrow the oversupply gap.
Lithium demand is set to surge as the clean energy transition gathers pace and electric vehicle (EV) adoption accelerates. The IEA foresees a substantial rise in consumption over the next several years, with China leading global demand in 2025. However, combined demand from Europe and the United States is expected to eventually overtake China, according to ScienceDirect.
Additionally, rapidly emerging automation and technological advancement, and growing demand for consumer electronics products such as laptops, mobile phones, and the Internet of Things devices will continue to fuel demand for lithium-ion batteries. Further, the increasing adoption of lithium-ion batteries in energy storage systems should drive growth.
On the other hand, the IEA projects that sustained demand growth could push the market into deficit, supporting a potential recovery in prices.
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