China’s Lithium Boom Hits a Snag as Declining Prices Hit High-Cost Miners Hard

In Beijing on March 14th, Reuters reported a significant decline in the price of lithium, a crucial component in electric vehicle (EV) batteries, which is impacting China’s mining of this ultralight metal. The combination of reduced demand for EVs and the costly extraction process associated with lithium is prompting a reevaluation of output growth and future project plans in the industry.

Global lithium prices have been sharply decreasing, with the Benchmark Mineral Intelligence Index plummeting by over 80% in the past year. Consequently, numerous producers worldwide have been compelled to halt production and implement job cuts. In China, which contributed approximately a quarter of the world’s mined lithium output in 2023, analysts anticipate a decline in the mining of lepidolite, a hard rock ore that is relatively expensive to process for lithium production. The sustained price slump renders the costly production of lepidolite economically unsustainable.

Susan Zou, a vice president at Rystad Energy, noted that the mining of lepidolite and the initiation of new projects in China and globally are significantly affected by the plummeting prices, while other types of lithium mines, particularly brine deposits in South America, maintain a rapid growth trajectory due to their relative cost advantages.

Rystad Energy has revised its forecast for China’s mined lithium output growth in 2024 to approximately 12%, down from the previous estimate of 54%, primarily due to the slowdown in lepidolite mining. Globally, the consultancy now anticipates a 27% growth in mined lithium output, down from the previous forecast of 42%.

According to Fastmarkets, nearly half of China’s lithium output in 2023 was derived from lepidolite, with the volume of this ore more than doubling over the past two years to reach 114,500 metric tons of lithium carbonate equivalent (LCE). However, the production cost of lithium carbonate equivalent from lepidolite in China ranges from 80,000 to 120,000 yuan ($11,120 to $16,680) per ton, significantly higher than the costs associated with extracting lithium from brine deposits and spodumene.

The economic viability of lepidolite mining in China has been undermined by softer EV demand and a supply glut, which have led to a substantial decline in spot lithium carbonate prices to around 100,000 yuan per ton from the peak levels near 600,000 yuan observed in November 2022.