Extended power rationing in Sichuan to further tighten China’s lithium supply in short term, shares of lithium miners rallied
Extended power rationing in Sichuan to further tighten China’s lithium supply in short term, shares of lithium miners rallied

Extended power rationing in Sichuan to further tighten China’s lithium supply in short term, shares of lithium miners rallied

 

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Southwest China’s Sichuan province will extend restrictions on power use by industrial users until August 25 to deal with rising household electricity demand amid a long-lasting heatwave and dwindling hydropower generation due to severe drought, reported several Chinese news outlets including Yicai and Caixin.

Sichuan had already imposed restrictions on industrial power use for the period from Aug. 15 to Aug. 20, but extended the curbs for another five days on Sunday as temperatures continued to linger at around 40 degrees Celsius (104 degrees Fahrenheit), the reports said.

Sichuan’s lithium salt output accounts for nearly one-third of China’s total and analysts expect the extended power rationing to reduce lithium supply by about 38 million tonnes in August.

Shares of Chinese lithium mining companies staged a strong rally on Monday, with Tianqi Lithium and Shenzhen Chengxin Lithium surging by the daily limit of 10%, Youngy Co. Ltd surging 8.7% and Ganfeng Lithium gaining 5.3%. An Index tracking lithium miners compiled by Wind Information surged by 6.2%, making it the best-performing sector in the A-share market.

According to state-backed research house Antaike, Sichuan province is a major production hub for the lithium mining industry, with the region’s output of lithium salt, cathode materials and anode material, accounting from 27.9%, 11.8% and 17% of the country’s total.

Though the province is also a lithium battery production hub, its share in the country’s total battery supply is relatively smaller, therefore, so the latest round of power rationing will have bigger impact on the upstream companies in the lithium industry than on downstream industries, said Antaike.

China’s lithium prices hit 485,000 yuan per tonne on Monday, rising by 3,500 yuan or 0.7% from the previous day. Since August 15 when Sichuan started power restriction, lithium prices have risen by 1.6%.

Ping An Securities estimated that China’s lithium salt supply may decline by 38 million tonnes in August, accounting for 7.5% of China’s domestic lithium salt output in July, further tighten supply in the near term.

However, from a longer perspective, the decline accounts for only 0.6% of the total domestic capacity, it said.

Lithium prices have been climbing for eight consecutive months since September 2021 and hit as high as 504,000 yuan per tonne in March. Due to the impact of Covid outbreaks since April, automobile production slowed and lithium prices have fluctuated for more than two months.

Guotai Junan said that lithium prices are expected to resume the rally in the third quarter and hit a new record high later this year.

However, Cui Dongshu, secretary-general of the China Passenger Car Association, said in a report on Monday that current high lithium carbonate prices do not reflect true supply and demand, as most contracts are long-term and only a small fraction of those deals are sold at high spot prices.

Factors including sellers’ reluctance to sell, hoarding and speculation by buyers and distributors led to market expectation of a shortage of lithium supply, Cui said.

On the other hand, the development of the new energy vehicle market has been stronger than expectations, deepening market expectation of a shortage of supply, triggering a continuous rise in lithium carbonate prices, according to Cui.

However, as the effect of the US Federal Reserve’s rate hikes becomes apparent, lithium prices are likely to remain between 470,000-500,000 yuan per tonne, unlikely to jump above 500,000 yuan per tonne, Cui said.