Lithium Sector Declines Amid Reports of CATL Mine Resumption
Lithium producers such as Albemarle, Lithium Americas, and SQM experienced significant stock declines following reports that Contemporary Amperex Technology Co. Limited (CATL)'s major Chinese lithium mine will resume operations, reversing previous market sentiment concerning reduced supply. The news has introduced renewed volatility into the lithium market.
U.S. equities saw a notable shift in the lithium sector as shares of major producers, including Albemarle (NYSE:ALB), Lithium Americas (NYSE:LAC), and SQM (NYSE:SQM), registered significant declines. This downturn was triggered by reports indicating that Contemporary Amperex Technology Co. Limited (CATL), a prominent Chinese battery manufacturer, plans to restart production at its previously suspended lithium mine.
The Event in Detail
On September 9th and 10th, Albemarle, the world's largest lithium producer, saw its stock fall by approximately 11.5% to 12%. This movement contributes to a broader 14% decline for the company's shares in September, contrasting sharply with a 25.2% surge in August. Other key players in the sector also felt the pressure, with Lithium Americas dropping 4.5% and SQM declining 6%. The broader impact extended to lithium carbonate futures in China, which fell more than 7%.
The catalyst for this market adjustment was the reported resumption of operations at CATL's Jianxiawo lithium mine in China. This mine, located in Yichun, Jiangxi province, accounts for an estimated 3% to 6% of the world's lithium supply, producing around 65,000 tons of lithium carbonate equivalent (LCE) annually. Its unexpected shutdown in August, due to an expired mining permit, had initially fueled a rally across lithium prices and related stocks, with lithium futures on the Guangzhou Futures Exchange jumping 8% and spot prices in China climbing 3%.
Analysis of Market Reaction
The market's reaction is a direct consequence of the interplay between supply expectations and lithium prices. The initial closure of CATL's mine had prompted investor anticipation of tighter supply, thereby supporting higher lithium prices and boosting the valuations of lithium producers. The news of the mine's imminent reopening has effectively reversed this sentiment, signaling an increase in supply that is expected to exert downward pressure on prices.
This dynamic highlights the sensitivity of the lithium market to supply fluctuations. Lithium is a critical raw material for electric vehicle (EV) batteries and energy storage systems, and any perceived shift in its availability can have significant implications throughout the supply chain, impacting both mining companies and battery manufacturers.
Broader Context and Implications
Historically, the lithium market has experienced considerable volatility, with prices undergoing a nearly two-year downward trend, collapsing 90% from their 2022 peaks, before the brief August rally. While the unexpected reopening of CATL's Jianxiawo mine has dampened recent optimism, the broader outlook suggests continued oversupply in the near term. Global lithium supply is projected to maintain a surplus of approximately 150,000 tonnes LCE in 2025, driven by new production capacity coming online.
Major producers, including SQM and Albemarle, have expanded their lower-cost brine operations in South America, enabling profitable production even at current price levels (around US$5,000 per tonne). Furthermore, advancements in Chinese production methods, particularly in lepidolite processing, have improved cost efficiency, contributing to China's lithium carbonate output surging to 450,000 tonnes in 2024 from 300,000 tonnes in 2023, exacerbating the oversupply situation.
Despite beating revenue forecasts in Q2 2025 with $1.33 billion, Albemarle's financial metrics reflect the challenging market. The company reported a negative P/E ratio of -8.00 and a Price-to-Sales (P/S) ratio of 2x, which is above the industry average. The company's net income for the quarter improved significantly to $22.9 million, compared to a $229.9 million loss in the prior year's second quarter, partially due to successful cost and productivity improvements.
Expert Commentary
Analysts are factoring in the renewed supply dynamics into their forecasts.
> Macquarie analysts noted that the return of Jianxiawo, with its 100,000 tonnes per annum of LCE capacity, would significantly affect the supply outlook. They warned that "prices may move to below Jianxiawo's break-even of 80-85k RMB/t to 70-75k RMB/t, which may push spodumene prices to US$800-850/t (or lower)." They also highlighted that companies with higher exposure to lithium pricing are most at risk.
Goldman Sachs forecasts a gradual recovery in lithium prices over the coming years, though not to 2023 peaks. The bank projects lithium carbonate to reach US$11,000 per tonne by 2025, rising to US$17,077 by 2028. For lithium hydroxide, favored in high-nickel battery chemistries, prices are expected to reach US$12,500 per tonne in 2025, increasing to US$17,327 by 2028.
Looking Ahead
The immediate future of the lithium market is likely to remain characterized by volatility, as supply and demand dynamics continue to rebalance. While the recent news from CATL underscores an oversupply scenario in the short term, long-term projections by Benchmark anticipate a significant lithium deficit, potentially reaching 572,000 tonnes by 2034. This necessitates substantial investment, with an estimated US$51 billion required for lithium production projects by 2030 to meet the soaring demand from the EV sector.
Automakers, recognizing lithium's strategic importance, are proactively engaging in upstream investments to secure future supply. Examples include General Motors' investment in Lithium Americas and Tesla's development of a lithium refinery in Texas. This forward-looking strategy suggests that while current market conditions are challenging for producers, the long-term fundamentals for lithium demand remain robust. Key factors to watch include the actual timing and ramp-up of production at CATL's mine, global economic indicators impacting EV demand, and further strategic moves by major players in the EV and battery supply chains. Analysts also suggest that lithium prices may recover to the marginal cost of production, estimated between US$15,000–US$20,000 per metric ton, in the medium term as structural deficits emerge.
