China lithium boom slows as sagging prices batter high-cost miners

China's lithium mining industry faces challenges due to price slumps, prompting reassessment of output growth and new project plans.

A slump in the price of lithium, a key raw material in electric car batteries, is dragging on China’s mining of the ultralight metal which together with a costly extraction process is prompting a reassessment of output growth and new project plans.

Softening EV demand has knocked down global lithium prices, with a basket tracked by Benchmark Mineral Intelligence plunging more than 80% in the past 12 months. That has already forced many producers worldwide to shutter production and cut jobs. In China, which accounted for about a quarter of the world’s mined lithium output in 2023, analysts expect the mining of lepidolite - a hard rock ore that is relatively expensive for producing lithium - to take a hit as a prolonged price slump makes costly production unsustainable.

“Lepidolite mining and new projects in China and worldwide are taking a big hit from prices, while other types of lithium mines that provide some relative cost advantages, especially brines in South America, will keep on a fast-growing pace,” said Susan Zou, a vice president at Rystad Energy.

The consultancy has slashed its forecast for China’s mined lithium output growth in 2024 to about 12% from 54% previously, mainly due to the lepidolite slowdown. Globally, it now expects 27% growth in mined lithium output, down from 42% previously.

Almost half of China’s lithium output in 2023 came from lepidolite, pricing agency Fastmarkets said, adding volumes of the ore more than doubled over the past two years to 1,14,500 metric tons of lithium carbonate equivalent (LCE). It costs about 80,000 yuan ($11,120) to 1,20,000 yuan to process a ton of LCE from lepidolite in China, while it costs around 40,000 yuan and 60,000 yuan to get the same volume from brine deposits and spodumene, respectively, analysts say.

That undermines the economics of lepidolite mining in China, where softer EV demand and a supply glut have pushed down spot lithium carbonate prices to around 1,00,000 yuan from peaks near 6,00,000 yuan in November 2022.

Five China-based analysts forecast spot prices will stay in the 1,00,000 yuan to 1,20,000 yuan range in 2024 or rise slightly higher, despite a futures rally boosted by restocking demand after the Lunar New Year holiday.