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China’s “lithium capital of Asia” is under heavy scrutiny following reports of a government investigation that began on Friday into suspected illegal mining practices.
Chinese government officials were sent to investigate the nation’s lithium hub in Yichun, a small city residing in the Southern Jiangxi province.
The Yichun local government announced on Friday it was vying to crack down on criminal activity occurring within the lithium industry, particularly involving unlicensed and environmentally damaging mining.
Yichun accounts for around 10 per cent of the global lithium supply.
Lithium processing facilities in the city were initially halted while the investigations commenced, but since then, mines with valid government permits have resumed production.
With China one of the world’s leading producers of the battery metal, the results of the investigation are set to impact the global lithium industry.
While experts believe lithium-producing disturbances won’t have an immediate impact on the metal market in the short term, they could impact the market in the future.
Lithium prices fell below 400,000 yuan (A$85,705) per ton on Friday, down more than 30 per cent on a record high in November.
China’s crackdown on suspicious mining activity
Lithium is increasingly being used in rechargeable batteries for electronic devices, but more notably for electric vehicles, which have amassed significant interest over the past few years.
Yichun has been at the heart of the lithium boom over the past two years as Chinese miners raced to grow its lithium deposits in a bid to keep up with the raging demand for the battery metal.
From all reports, villagers from the small town became obsessed with digging up lepidolite ore in local mining areas, mountains and woods to sell to fill their pockets.
Lepidolite is a lithium-aluminium potassium mineral that villagers can dig up and sell to make up to 1000 yuan a day (around A$200).
The craze that swept the small city reportedly caused environmental damage and exploitation without a licence, which has led to the investigation taking place.
In December, SSE-listed Yongxing Materials halted its production as a result of nearby water areas exceeding the normal quality standard for thallium.
Yichun accounts for about 40 per cent of China’s total reserves of lepidolite.
As the crackdown and resulting consequences impact China’s supply chain, other leading lithium-producing countries like Australia and Chile could reap rewards.
Australia tops lithium-producing nations
Australia is considered by far to be the top lithium-producing nation in the world, with an output of 42,000 tonnes in 2019.
The Greenbushes lithium mine in Western Australia — a joint venture between the world’s largest lithium producer, Albermarle, and China’s Tianqi Lithium — is the largest project to extract the metal in the world.
The largest independent lithium developer in Australia is Pilbara Minerals (PLS), which reported production volumes of 309,255 dry metric tonnes of spodumene in FY22 — up 83 per cent on the year prior.
Other ASX-listed lithium companies include Mineral Resources (MIN), Allkem (AKE) and Liontown Resources (LTR), as well as many others.
Australia’s miners may well benefit from the crackdown on China’s lithium supply as demand for the metal shows no signs of slowing down.
