© Reuters. FILE PHOTO: A vehicle is seen near a lithium smelter in Yichun, Jiangxi Province, China, on March 30, 2023. REUTERS/Staff/File photo
Written by Si Liu and Dominic Patton
Yichun, China (Reuters) – On a steep dirt road from the Baishi Huashan lithium mine in southern China, trucks loaded with silvery ores hurtle towards a group of smelters in the valley below that have sprung up to tap an electric car battery. bubble.
Yichun, the region with the most potential for lithium in China, is ground zero in the country’s push to reduce its reliance on imports of the metal for its battery industry, which makes three-quarters of the world’s lithium-ion batteries.
Yichun, by mining the mineral from a rock called lepidolite, aims to quadruple its production to about 350,000 metric tons of lithium carbonate equivalent (LCE) by 2025, or as much as Australia produced last year.
However, with production costs much higher than other Chinese mining regions, Yichun is the most vulnerable to the recent global drop in lithium prices, which raises questions about how it will achieve its goal.
At the same time, concern is growing about the environmental impact of extracting lithium ore from lepidolite, which has already prompted the Yichun authorities to close some factories, presenting an additional challenge to the country’s endeavors towards self-reliance.
Monthly production in Yichun fell by about a third after China moved to rein in a chaotic rush in the sector, while Beijing also cut subsidies for electric cars, hurting demand for lithium and sending prices down.
“Many investments in Yichun are now at risk after this year’s price drop,” said Yang Yaohua, an analyst at Guosen Futures.
With global lithium demand expected to grow 76% to 1.57 million metric tons of LCE between 2022 and 2025, according to Australia’s Macquarie Bank, and China relies on imports for 55% of its lithium, Beijing wants to boost domestic production.
Leading this push is Yichun, a city of 5 million people surrounded by forest-covered mountains rich in pedolite.
By the end of last year, 202 companies, including battery giant CATL and Gotion High Tech, had invested in smelters and mines in the city, according to Yichun’s website.
Cost challenge
For manufacturers of battery materials, the location of Yichun is its main attraction. Its mines are more accessible than the salt lakes on the western plateaus of China and the spodumene rocks in the southwestern province of Sichuan.
To attract investment, the city has rolled out a host of sweeteners in recent years, targeting 500,000 metric tons per year of lithium carbonate production from lepidolite and other sources.
It has supported mine development by taking stakes in mining companies to help makers of battery materials that do not have mines overseas like those of China’s major lithium producers Ganfeng Lithium and Tianqi Lithium.
In comparison, development in other lithium-rich regions lags far behind.
“There are very few battery precursor makers in Qinghai, and saltwater lake production in the Qinghai-Tibet Plateau regions can be very limited during very cold winter weather,” said Arena Yang, battery metallurgy analyst at CRU in Shanghai.
However, Yichun faces a huge cost disadvantage. Analysts said separating lithium from lepidolite can cost as much as 100,000 yuan per metric ton, compared to 40,000 to 50,000 yuan for brine and 50,000 to 60,000 yuan for spodumene.
The cost difference was manageable until lithium prices fell after Beijing cut subsidies for electric cars this year.
“Rising costs are a concern, especially if lithium prices remain on a downward trend,” said Yang, an analyst at Guosen.
He sees lithium prices drop to 100,000 yuan as soon as next year from the current 320,000 yuan due to the looming global oversupply.
chaos of natural resources
Further clouding the outlook for lepidolite, environmental damage is a growing concern.
Along the road to the Baishi Mine, the red banners plead: “Unite to suppress the chaos of natural resources.”
Wu Wei, assistant professor at Xiamen University, said that the extraction and smelting of lepidolite produces toxic by-products such as thallium and tantalum that cause severe water pollution.
Yichun authorities have already found toxic substances in the Jin River, according to media reports.
Eric Norris, head of energy storage at the world’s largest lithium miner Albemarle (NYSE: Corp.), said miners in the United States would never be allowed to do the kind of processing seen in China for lepidolite.
“It comes at a huge environmental cost,” Norris told Reuters in an interview.
In December, Yongxing Special Materials Technology said production at its factory in Yichun had been suspended for 10 days while authorities investigate abnormal water quality found in the Jin River.
Around the same time, China’s newspaper The Paper said the Yongxing plant was among four plants in Yichun that halted production after high levels of thallium were found in water samples from the river, a major source of water supply for the region.
Reuters has not independently confirmed the contamination incidents. Yongxing did not respond to questions via email. The news department of the Yichun government did not answer several calls. The news department of the Jiangxi provincial government did not respond to a request for comment.
By 2025, if Yichun reaches its target of 500,000 metric tons per year of lithium carbonate production, it will produce about 10 million tons of waste, according to Lv Jun, director of the New Energy Industry Development Center for Lithium Batteries in Yichun.
This will be more than ten times the current tailings treatment capacity in Yichun, said Ma Jun, director of the Institute of Public and Environmental Affairs (IPE), a non-profit organization in Beijing, citing public information.
“Before, local environmental supervision was not strict. Now that it is getting stricter, lithium resources in Yichun will lose their competitiveness as environmental protection costs will rise,” Ma said.
Many companies are moving ahead right now, said Vicky Chow, a senior analyst at Fastmarkets, while seeking better control over costs. But questions remain about Yichun’s ambitions.
UBS analysts see China’s supply of lithium from lepidolite tripling to 280,000 metric tons, or 13% of global supply, between 2022 and 2025, well below Yichun’s target.
“Unless lepidolite producers find a way to solve environmental and cost issues through technological innovation and industry upgrade, it will still be the second choice for spodumene,” said Li Qiye, an analyst with British consulting firm Benchmark Mineral Intelligence.
($1 = 7.1418 renminbi)
