CATL’s decision to suspend lithium production in Jiangxi has sent shares of major lithium producers soaring, following a prolonged price slump caused by overcapacity in the sector.
In a research note released today, UBS analyst Sky Han and his team confirmed that CATL has decided to halt operations at its Jiangxi lithium facility. “This isn’t the first time we’ve heard of CATL cutting or suspending production in Jiangxi, but we have higher conviction this time,” the note read. Shares of China’s top lithium producers surged in response, with Ganfeng Lithium and Tianqi Lithium, both listed in Shenzhen, hitting the 10% daily trading limit by the close of business.
Shortly after, local media outlet Cailian confirmed the rumors were true, citing a response from CATL. According to a company representative, CATL plans to adjust lithium carbonate production in Yichun based on current market conditions. CATL had acquired exploration rights for a lithium mine in Yichun, dubbed the “lithium capital of Asia,” for RMB 865 million in April 2022.
Earlier this year, there were rumors of a production halt at the Yichun mine due to falling lithium prices, which CATL denied at the time.
UBS analysts estimate CATL’s cash cost of mining lithium carbonate in Yichun at $10,968 per ton (excluding VAT), with the total cost rising to RMB 89,000 ($12,520) per ton when VAT is included. Since mid-July 2024, the spot price of lithium carbonate has fallen below CATL’s cash cost, with battery-grade lithium carbonate quoted at RMB 73,500 per ton today, down 27% year-to-date, according to Mysteel data monitored by CnEVPost.
In 2023, lithium carbonate prices plummeted 80%, from around RMB 520,000 per ton to just over RMB 100,000 per ton.
While UBS initially thought CATL might tolerate losses in its lithium business to focus on overall battery margins, the company has now reacted to two months of losses and ongoing downside risks in lithium prices.
The production suspension in Jiangxi is expected to reduce China’s monthly lithium carbonate output by 8%, or about 5,000 to 6,000 tons of lithium carbonate equivalent. UBS believes this move will help stabilize the supply-demand balance and positively impact lithium prices, which they project to increase by 11% to 23% through the rest of 2024.
UBS analysts estimate lithium prices could find support at $9,909 per ton (excluding VAT) based on the 2024 global cash cost curve, with a potential cap at $10,968 per ton, as CATL may resume production if prices rise to this level.