CATL Halts Key Lithium Mine, Supply Squeeze Drive Analysts Predictions

Author: Stjepan Kalinic | September 12, 2024 08:16am

News of the suspension, initially circulated by UBS based on industry sources, was later confirmed by CATL itself. In a statement to Reuters, they acknowledged that "based on recent lithium carbonate market conditions, the company plans to make adjustments on lithium carbonate production in Yichun."

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The move is expected to reduce China's monthly lithium carbonate production by about 8%, equivalent to around 5,000 to 6,000 tons.

The immediate impact was a surge in lithium prices, as lithium carbonate futures on the Guangzhou Futures Exchange jumped 5.5%, reaching 76,700 yuan per ton ($10,700), though still down 27% year-to-date.

The unexpected sentiment shift triggered a supply short squeeze as short-sellers scrambled to cover their positions. Australian lithium producer Pilbara Minerals (OTCPK: PILBF), owner of the world's largest independent hard-rock lithium operation, surged 16% while U.S.-based Albemarle (NYSE:ALB) jumped over 13.5% while remaining down 39% year-to-date.

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"We see near-term sentiment uplift to lithium prices, helped too by the traditional September-October peak season. These should accelerate the lithium destocking process as well," noted Citi's analyst Jack Shang per AFR.

Tribeca's portfolio manager, Ben Cleary, shared his opinion about the nature of this rally.

"The rally we're seeing today is almost 100 percent short covering. Supply coming out of the market is exactly what the lithium market needs, so there is plenty of room for this rebound to run given how hard the stocks have been hit."

Meanwhile, CLSA's James McIntosh took a more cautious stance.

"Although we are not optimistic about a rebound in lithium prices over the next year, we might be able to believe that there won't be a significant further decline in lithium prices. We have entered the bottom range," he said, pricing the market's floor at 70,000 yuan ($9,800).

UBS projects lithium prices to increase between 11% and 23% for the remainder of the year. However, CATL might resume production if prices stabilize around $10,968 per ton, putting a ceiling on further gains.

Lithium prices have tumbled nearly 90% since its peak in 2022, owing mainly to an oversupply and a slowdown in electric vehicle adoption. As lower prices cut off supply, the market hopes for temporary relief and stabilization.

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